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.

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March 2006     Paper Number CEPDP0719

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This CEP discussion paper is published under the centre's Trade programme.