This paper argues that economic development is fundamentally a process of self-discovery, where countries learn what they are good at producing. The authors challenge the conventional view that economic growth requires foreign technology and good institutions, instead emphasizing the importance of discovering domestic capabilities. They present a general-equilibrium model of a small open economy to analyze the role of investment, entrepreneurship, and production diversification. The model shows that without policy intervention, there is too little investment and entrepreneurship ex ante, and too much production diversification ex post. Optimal policy involves encouraging investment in the modern sector ex ante and rationalizing production ex post. The authors highlight two key findings: first, the disappointing economic performance of Latin American countries in the 1990s, despite improved governance and openness; and second, the success of countries like South Korea, Taiwan, China, and India, which achieved growth through non-conventional strategies. These examples suggest that the conventional view of economic development is incomplete. The paper argues that the key challenge in economic development is learning what a country is good at producing. This process is often hindered by the fact that the returns to investment in discovering production capabilities are not fully appropriated. This leads to underinvestment in the modern sector and over-diversification in production. The authors propose that governments should play a dual role in fostering industrial growth: encouraging entrepreneurship and investment in new activities ex ante, and pushing out unproductive firms and sectors ex post. The paper also discusses the role of policy instruments in promoting self-discovery. It argues that temporary trade protection and export subsidies are not ideal instruments, as they can lead to excessive diversification and inefficiencies. Instead, public sector credit or guarantees can be more effective, as they can target innovators and reduce the risk of failure. The authors also highlight the importance of discipline in economic development, noting that countries like South Korea and Taiwan were successful in part because of their strong state intervention and discipline over firms. The paper concludes that economic development is a complex process that requires a combination of policy interventions, including encouraging entrepreneurship and investment, and rationalizing production. The authors argue that the conventional view of economic development is incomplete and that a more nuanced understanding of the role of self-discovery is needed.This paper argues that economic development is fundamentally a process of self-discovery, where countries learn what they are good at producing. The authors challenge the conventional view that economic growth requires foreign technology and good institutions, instead emphasizing the importance of discovering domestic capabilities. They present a general-equilibrium model of a small open economy to analyze the role of investment, entrepreneurship, and production diversification. The model shows that without policy intervention, there is too little investment and entrepreneurship ex ante, and too much production diversification ex post. Optimal policy involves encouraging investment in the modern sector ex ante and rationalizing production ex post. The authors highlight two key findings: first, the disappointing economic performance of Latin American countries in the 1990s, despite improved governance and openness; and second, the success of countries like South Korea, Taiwan, China, and India, which achieved growth through non-conventional strategies. These examples suggest that the conventional view of economic development is incomplete. The paper argues that the key challenge in economic development is learning what a country is good at producing. This process is often hindered by the fact that the returns to investment in discovering production capabilities are not fully appropriated. This leads to underinvestment in the modern sector and over-diversification in production. The authors propose that governments should play a dual role in fostering industrial growth: encouraging entrepreneurship and investment in new activities ex ante, and pushing out unproductive firms and sectors ex post. The paper also discusses the role of policy instruments in promoting self-discovery. It argues that temporary trade protection and export subsidies are not ideal instruments, as they can lead to excessive diversification and inefficiencies. Instead, public sector credit or guarantees can be more effective, as they can target innovators and reduce the risk of failure. The authors also highlight the importance of discipline in economic development, noting that countries like South Korea and Taiwan were successful in part because of their strong state intervention and discipline over firms. The paper concludes that economic development is a complex process that requires a combination of policy interventions, including encouraging entrepreneurship and investment, and rationalizing production. The authors argue that the conventional view of economic development is incomplete and that a more nuanced understanding of the role of self-discovery is needed.