Coordination problems, risk diversiﬁcation, and chance Economic Development and the Traditional Sector Richard Grabowski* Department of Economics, Southern Illinois University, Carbondale, IL 62901-4515, USA Abstract This paper views the development process as a coordination problem subject to risk and chance. The degree of luck in economic experiences is limited by the extent to which an integrated market system exists. This is in turn related to the development of the traditional agricultural sector. As widespread development of this sector occurs market integration is achieved and the problem of coordinated development becomes easier. These ideas are illustrated with reference to the experiences of Japan and Taiwan. © 1999 Elsevier Science Inc. All rights reserved. JEL classiﬁcation: 01; 012 Keywords: Coordination; Market integration; Risk diversiﬁcation; Agriculture; East Asia 1. Introduction The analysis of economic development has, for long periods of time, been dominated by accumulation theories of economic growth. These sorts of theories have emphasized the accumulation of capital and technology, or the closing of a technological gap, as being the key to successful development. In these theories savings, investment, and capital accumu- lation (whether of the physical or human variety) are the mechanisms by which growth can be generated. From this perspective agricultural production and rural based manufacturing, what I will call traditional sector activities, are seen as contributors of various factors for the * Corresponding author. Tel.: +1-618-453-5067; fax: +1-618-453-2717. E-mail address: ricardo@siu.edu (R. Grabowski) Journal of Asian Economics 10 (1999) 475– 487 1049-0078/99/$ – see front matter © 1999 Elsevier Science Inc. All rights reserved. PII: S1049-0078(99)00037-8