ABSTRACT
This chapter focuses on the institutions in the less developed countries (LDCs), the developing market economies. It discusses the extensive informal sectors found in many LDCs. The chapter contrasts the post-World War II experiences of Latin American nations with those of many Asian nations. The informal economy consists of all those activities that fall into the gray area between the formal economy and the underground economy. The most common type of informal activity in developing economies is street vending. From approximately the 1930s through the early 1980s, Latin America pursued a policy of import substitution industrialization (ISI). Implementation of ISI included high tariffs and strict quotas on imports, diversion of resources from the export sector to finance the construction and expansion of domestic industry, and monetary intervention to overvalue the domestic currency. In contrast to Latin America, many East Asian nations adopted export-led policies. The goal of these policies is to develop export sectors that are competitive in world markets.
