ABSTRACT
In the previous chapter [of Basic Issues in Development Economics], we studied the underdevelopment of one type of resource allocation mechanism, the market economy, and its development process, from the viewpoint of the changes in the customary economy.2 We examined the functions and ultimate disappearance of the customary economy, which complements the weak allocative capacity of underdeveloped markets. However, research on underdeveloped market economies should also include analysis of the underdeveloped state of the market economy itself, independent from the customary economy. The reason for this is as follows. The strength of the customary economy differs from one less developed country (LDC) to another. In some cases, the customary economy was uprooted prematurely by external forces even though the market economy remained severely underdeveloped. An extreme example was the destruction of village communities in the floodplains of Northern China by foreign intruders. Similar devastation visited many LDCs in the colonization process, beginning in the sixteenth century. Even in countries where the customary economy is firmly established, the development of the market economy itself must be explained, whether the customary economy subsequently thrives or weakens.
