What is Traditional Economy?

It marks the evolution of the market economy—historically, every country developed out of some form of the traditional economy. Contemporarily though, most traditional countries have transformed into mixed economies. Traditional countries miss out on trade relations, exchange of culture, and scientific development.

Traditional Economy Explained

A traditional economy is seen in a country that holds on to its history, customs, beliefs, and traditions. In traditional countries, most of the population is employed in the economic activity of their ancestors. It is an economic system based on agriculture, fishing, and hunting.

Key Takeaways

  • In a traditional economy, people are rooted in history, tradition, customs, and beliefs. Traditions dictate methods of goods production and distribution.In subsistent economies, production is aimed at self-sustenance—they consume whatever they produce. Trade is minimal.In conventional economies, natives make a living out of skills acquired from family and community. Over centuries, these communities have become highly skilled in a particular niche.In 2022, the traditional economic system can be seen in nations like Brazil, Alaska, Canada, Yemen, Haiti, and Greenland.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Traditional Economy (wallstreetmojo.com)

In such economies, community structure and family sentiments greatly influence national production and distribution. Some of these economies still follow archaic business models like the barter system—exchanging commodities for commoditiesCommoditiesA commodity refers to a good convertible into another product or service of more value through trade and commerce activities. It serves as an input or raw material for the manufacturing and production units.read more. Traditional business structures are not designed around parameters like GDPGDPGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period.read more, GDP per capitaGDP Per CapitaGDP per capita is a parameter that breaks down the GDP of a country to measure the economic prosperity of the citizens by simply dividing the GDP by the total population of that country.read more, or GNPGNPGNP or gross national product of a country measures the overall market value of products and services offered by its citizens and businesses domestically and internationally over a given year.read more.

But, all modern markets, i.e., capitalist, socialist, communist, and mixed economies, have their roots in the traditional economy. Traditional economies are less developed—they follow ancient methods for distribution. As a result, most traditional nations are often labeled underdeveloped or developing.

Globally, there is a perception that traditional countries value traditions and history over economic growthEconomic GrowthEconomic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period.read more.

Traditional Economy Characteristics

To understand the traditional economic system, we must distinguish it from the other economic systems. Traditional economy characteristics are as follows:

  • The nation’s production and distribution are based on people’s customs, history, traditions, and beliefs.In traditional countries, history, beliefs, and traditions often outweigh economic growth.Traditional economic activities include activities like agriculture, hunting, fishing, gathering, and cattle rearing.Historically, a group of people engaged in farming or hunting ended up settling—gradually, It became a society.In subsistent economies, production is aimed at self-sustenance—they consumed whatever they produced and relied mostly on barter systems. Trading was meant to be minimal.Parallels have been drawn between traditional economic systems and underdeveloped or developing nations.

Example

In 2022, The World Population Review labeled Brazil, Haiti, Alaska, Yemen, Canada, and Greenland as traditional economies. Most conventional economic systems are found in Asia, Africa, Latin America, and the Middle East.

Advantages

A traditional economic system has the following advantages:

  • Keeps the Traditions and Customs Alive: In traditional countries, people preserve skills and art within respective communities, tribes, and families.No Wastage of Goods: Since the goods are produced only to meet the requirements of the community, tribe, or family, there is no surplus.Have Scope for Evolution: This economic structure has the potential to adapt—imbibing traits of different economic structures. In fact, all modern economic systems have evolved out of the traditional system.Environmentally Friendly: Due to the limited use of technology, the conventional methods of conducting economic activities are less harmful to nature and the environment.Skilled and Talented People: Natives make a living out of skills acquired from family and community. Over centuries, these communities have become highly skilled in a particular niche.Role Clarity and Satisfaction: Individuals who run family trades are successors—they inherit both responsibilities and skills. They are introduced into the business from a very young age. Also, they are satisfied with whatever they do and earn out of it. Safe from Global Problems: Self-sustained economies often remain disconnected from the outside world—they can avoid various infectious diseases spread globally.

Disadvantages

Traditional economy disadvantages are as follows:

This has been a guide to what is Traditional Economy. We discuss the traditional economy system, definition, characteristics, countries, examples, advantages & disadvantages. You can learn more from the following articles – 

A traditional economy is a system where people’s customs, traditions, history, and beliefs stimulate the production and distribution of goods and services. The exchange of commodities takes place through the barter system. 

It produces enough goods and services to fulfill the needs of the community or tribe. In conventional economies, farming, hunting, fishing, herding, and gathering are major contributors.

Its main objective is to keep the culture, beliefs, and traditions of a community or family alive—by following primitive economic activities and the barter system.

  • Knowledge EconomyNew EconomyCapitalist Economy