Economic development has at times been punctuated by an intense ideological debate that is raging between free-marketeers and interventionists. The free-marketeers seem to have won the day, at least as far as international trade is concerned. On both sides the argument is grounded on good theoretical premises and is buttressed by eclectically assorted empirical evidence.

Neoclassical orthodoxy has emphasized (but to a lesser or greater degree) the importance of undistorted markets and market-clearing prices as instruments that lead not only to macroeconomic stability, but also to high levels of investment, efficiency, growth, and, ultimately, improved living conditions. Structuralists, on the other hand, have focused on various features of developing countries that constitute a special case and therefore call for intervention (Chenery, 1979, Table 2-1). The structuralist position, being greatly diffused, has rightly drawn the charge that it is “an eclectic collection of ideas, not a systematic challenge” to the neoclassical orthodoxy (Dornbusch and Fischer, 1984, p. 571).

This chapter reviews the neoclassical foundations of economic development that support the ideas of laissez faire and free trade. It proceeds with a characterization of the structuralist position, based on the introduction of the demand side in the neoclassical edifice. The next chapter introduces concepts of the “new development economics” that extend the exceptions to the neoclassical paradigm to cover incomplete markets. Finally, a special market incompleteness is introduced in international trade and foreign exchange that forms the foundation for “systematic structuralism.”