TY  - JOUR
AU  - Hausmann, Ricardo
AU  - Rodrik, Dani
TI  - Economic Development as Self-Discovery
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8952
PY  - 2002
Y2  - May 2002
DO  - 10.3386/w8952
UR  - http://www.nber.org/papers/w8952
L1  - http://www.nber.org/papers/w8952.pdf
N1  - Author contact info:
Ricardo Hausmann
Harvard Kennedy School
79 JFK St.
Cambridge
MA
02138
Tel: 617-496-3740
E-Mail: ricardo_hausmann@harvard.edu

Dani Rodrik
John F. Kennedy School of Government
Harvard University
79 J.F. Kennedy Street
Cambridge, MA 02138
E-Mail: dani_rodrik@harvard.edu
AB  - 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.
ER  -