This article presents a new perspective on economic development, emphasizing the importance of discovering what a country is good at producing. Ricardo Hausmann and Dani Rodrik argue that economic development is not just about adopting foreign technology and having good institutions, but also about learning what a country can produce efficiently. They highlight that in developing countries, much technology is "tacit," meaning it cannot be easily codified or transferred. Moreover, even when advanced countries' technologies are transparent, their transfer to new environments often requires adaptations with uncertain success. The authors develop a general-equilibrium framework to analyze the analytical and normative issues in economic development. They show that in a small open economy, the laissez-faire outcome leads to too little investment and entrepreneurship ex ante, and too much production diversification ex post. The optimal policy, therefore, should encourage investments in the modern sector ex ante but rationalize production ex post. The authors also highlight two important anomalies in the conventional view of economic development. First, despite improved governance and openness in Latin America during the 1990s, economic growth was disappointing. Second, countries like South Korea, Taiwan, China, and India achieved significant growth under heterodox arrangements, challenging the consensus view. The authors argue that the key challenge in economic development is learning what a country is good at producing. This learning process is crucial for specialization and future growth. However, the initial entrepreneur who makes the "discovery" can only capture a small part of the social value, as other entrepreneurs can quickly imitate the discovery. This leads to undersupply of entrepreneurship and delayed economic transformation. The authors also discuss the role of policy in fostering economic development. They argue that governments need to play a dual role: encouraging entrepreneurship and investment in new activities ex ante, but pushing out unproductive firms and sectors ex post. They highlight that policy interventions can create distortions, such as lowering the expected payoff to innovation or promoting early entry, which limits the benefits to innovators. In conclusion, the authors argue that economic development is a process of self-discovery, where countries need to learn what they are good at producing. This learning process is essential for specialization and future growth, but it requires appropriate policies to encourage investment and rationalize production. The authors emphasize that the conventional view of economic development, which focuses on foreign technology and good institutions, is incomplete and needs to be complemented with a focus on learning what a country is good at producing.This article presents a new perspective on economic development, emphasizing the importance of discovering what a country is good at producing. Ricardo Hausmann and Dani Rodrik argue that economic development is not just about adopting foreign technology and having good institutions, but also about learning what a country can produce efficiently. They highlight that in developing countries, much technology is "tacit," meaning it cannot be easily codified or transferred. Moreover, even when advanced countries' technologies are transparent, their transfer to new environments often requires adaptations with uncertain success. The authors develop a general-equilibrium framework to analyze the analytical and normative issues in economic development. They show that in a small open economy, the laissez-faire outcome leads to too little investment and entrepreneurship ex ante, and too much production diversification ex post. The optimal policy, therefore, should encourage investments in the modern sector ex ante but rationalize production ex post. The authors also highlight two important anomalies in the conventional view of economic development. First, despite improved governance and openness in Latin America during the 1990s, economic growth was disappointing. Second, countries like South Korea, Taiwan, China, and India achieved significant growth under heterodox arrangements, challenging the consensus view. The authors argue that the key challenge in economic development is learning what a country is good at producing. This learning process is crucial for specialization and future growth. However, the initial entrepreneur who makes the "discovery" can only capture a small part of the social value, as other entrepreneurs can quickly imitate the discovery. This leads to undersupply of entrepreneurship and delayed economic transformation. The authors also discuss the role of policy in fostering economic development. They argue that governments need to play a dual role: encouraging entrepreneurship and investment in new activities ex ante, but pushing out unproductive firms and sectors ex post. They highlight that policy interventions can create distortions, such as lowering the expected payoff to innovation or promoting early entry, which limits the benefits to innovators. In conclusion, the authors argue that economic development is a process of self-discovery, where countries need to learn what they are good at producing. This learning process is essential for specialization and future growth, but it requires appropriate policies to encourage investment and rationalize production. The authors emphasize that the conventional view of economic development, which focuses on foreign technology and good institutions, is incomplete and needs to be complemented with a focus on learning what a country is good at producing.