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CEP discussion paper
A Gold Rush Theory of Economic Development
Ralph Ossa
March 2006
Paper No' CEPDP0719:
Full Paper (pdf)

JEL Classification: O10; O12; O14

Tags: economic development; social learning; lumpiness

This paper presents a model of social learning about the suitability of local conditions for new business ventures and explores its implications for the microeconomic patterns of economic development. I show that: i) firms tend to ‘rush’ into business ventures with which other firms have had surprising success thus causing development to be ‘lumpy’; ii) sufficient business confidence is crucial for fostering economic growth; iii) development may involve wave-like patterns of growth where successive business ventures are first pursued and then given up; iv) there is, nevertheless, no guarantee that firms pursue the best venture even in the long-run.