The purpose of this study is to investigate the production and trade contracts now being tried at the grass-roots level in support of rural based industrialization. The points of reference in this investigation are historical explorations of the early stage of industrialization in Japan and field surveys of current developments in East Asia. Special attention is given to the conditions that allow the relational contracting system to become the dominant production organization over a vertically integrated system. The term relational contracting is used here to encompass the long-term, continuous contract relationships between small, rural-based manufacturers and traders or agents of large, urban-based firms, as well as similar contracts between rural-based manufacturers and their workers, which are enforced and maintained primarily by personal ties and community obligations. This contract mechanism is vital - it is the channel that conveys the demands of large markets, both foreign and domestic, to the small, isolated manufacturers in rural areas that would otherwise be subject to severe imperfections of market information. The findings clearly demonstrate that rural people in developing areas of Asia possess sufficient entrepreneurship - if they are not held back by undue regulation, taxation, and macroeconomic instability - to organize a network of relational contracts that link their production activities with reservoirs of national and international demand.