Ricardo Hausmann - Self-discovery

Self-discovery

Self-discovery is a concept developed by Ricardo Hausmann and Dani Rodrik, referring to the process of discovering what economic activities can profitably be pursued in a given country. In a 2003 paper titled “Economic Development as Self-Discovery”, Hausmann and Rodrik contest the notion that growth will follow automatically from the presence of state-of-the-art technologies and good economic institutions (like well-designed and enforced property rights). Another condition, they state, is that entrepreneurs in the country know what new economic activities can profitably be pursued there—in other words, that there is sufficient self-discovery.

Self-discovery is costly for the innovative entrepreneurs that invest their resources in it. However, the benefits of self-discovery accrue to all entrepreneurs in the country, who now know what activities are profitable without having to find out themselves. If this eventually leads to more innovation and growth in the country, the benefits of self-discovery accrue to even larger groups of people. Thus, according to Hausmann and Rodrik, self-discovery has benefits that stretch far beyond the firm that originally invested in the discovery (in other words, it has positive externalities). In consequence, governments should implement economic policies that promote self-discovery.

In a later paper, Hausmann, Rodrik and co-author Jason Hwang nuance the previous conclusions on self-discovery. They argue that some products are associated with higher productivity levels than other. Thus, self-discovery is mainly beneficial for countries if it is discovered that high-productivity goods can be profitably produced there. This is because the new products enhance the profitability of the country's export basket, which in turn is associated with higher growth. In other words, some products are more interesting to discover than others, and these products are what really causes the beneficial effect of self-discovery.