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@techreport{NBERw8952,
 title = "Economic Development as Self-Discovery",
 author = "Hausmann, Ricardo and Rodrik, Dani",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "8952",
 year = "2002",
 month = "May",
 doi = {10.3386/w8952},
 URL = "http://www.nber.org/papers/w8952",
 abstract = {In the presence of uncertainty about what a country can be good at producing, there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated.  We develop a general-equilibrium framework for a small open economy to clarify the analytical and normative issues.  We highlight two failures of the laissez-faire outcome: there is too little investment and entrepreneurship ex ante, and too much production diversification ex post.  Optimal policy consists of counteracting these distortions: to encourage investments in the modern sector ex ante, but to rationalize production ex post.  We provide some informal evidence on the building blocks of our model.},
}