One of the stated aims of the Elite Player Performance Plan (EPPP), introduced for the start of the 2012-13 season, is to "increase the number and quality of home grown players" at the top level of the game through increased coaching hours.
West Ham's academy, run by Tony Carr, has been granted Category One status which guarantees more funding from the Premier League and will enable the club to attract a better quality of young player.
Allardyce says the introduction of the EPPP is a step forward for the English game.
"It is a fantastic idea," Allardyce told Yahoo!-Eurosport. "It is still in its infancy and I still think there will be some adjustments needed to be made.
"If I have to point at one area it's basing itself in the latter end category of youth development with is 16 to 21, and I think there is a lot more needed to be done between 12 and 16.
"If we can roll it into that age, and get more time, get them out of schools, have schooling at the football club as well, to get them into the football club ... then that will work and we will see a benefit."
However, Allardyce says the focus should be on ensuring that young English hopefuls are given more opportunities if the national team is to benefit as a result of the new system.
He added: "I think that we have to think British more and be more selfish than we are in football. I think far too many of us today are just thinking because we have such a worldwide brand that it's enough just to develop players from any nationality in this country now.
"For me, far too many players are brought in from other foreign countries to take up academy places in this country - which doesn't happen in other European countries.
"We say we have got to be fair to all, but if you go to Spain or Italy or Holland or places like that, you don't see that fairness in those countries. You don't see the integration of other nationalities into their academies.
"I think we need to be a little bit more selfish about our own, and develop our own more than this sort of 'open door' that we seem to have all the time because eventually the England side will be very, very poor indeed because there's not enough players to choose from now and in the near future, if we are not careful, there will be even less to choose from than there are now."
Sam Allardyce was speaking to Yahoo!'s 'The Dugout' through its partnership with the League Managers Association