Economic Development as Self-Discovery

  title={Economic Development as Self-Discovery},
  author={Ricardo Hausmann and Dani Rodrik},
  journal={Macroeconomics eJournal},
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… 
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