Industrialization in the
Development Process
The Development Stage
 Developing countries characterized by a high
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degree of subsistence production
Agricultural sector is paramount and important
While industrialization does not insure
development it does have some healthy
implications
It implies: technology application
It implies: raising productivity per worker
It implies: releasing labor for other tasks
But all sectors must move forward and some
balance is desirable
Industrialization As A Panacea?
 Industrialization is not a panacea or cure
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all but it does carry with it some important
attributes
1. Employment for deepening labor market
2. Allows improvement in standard and
quality of living
3. Improves balance of payments
4. Provides certain element of national
prestige
Industrial Sectors
 Primary-that part of the economy that specializes in the
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production of agricultural products and the extraction of
raw materials. Major industries include mining,
agriculture, forestry, and fishing.
Secondary: manufacturing portion of the economy that
uses raw materials and intermediate products.
Industries include: motor vehicle assembly, textiles, and
building and construction activities.
Tertiary sector- the services and commerce portion of
an economy. Includes both consumer (individuals) and
producer (firms) services. Repair of capital goods (e.g.
ships), haircuts, medical care, and transport (e.g. taxis
and air cargo—consumer and producer respectively.
Quaternary- that portion of a region's economy devoted
to informational and idea-generating activities (e.g.,
basic research, universities and colleges, and news
media) and includes the production, processing, and
consumption of information.
Quinary activities involve high level decision making or
control functions that manipulate the vast resources of
private businesses and governments.
Comparing Industry versus Agriculture
 Farmer has little control over his environment:
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pests, drought
Agricultural production is generally slower and
product cannot be quality controlled as in
manufacturing
Agricultural commodities are susceptible to wide
price swings in the global market
Relative inelasticity of demand for agricultural
products, i.e. if prices fall more purchases are
not assured
Technology has had a much greater impact on
industry than agriculture
Increased specialization of labor in
manufacturing results in higher productivity
Therefore manufacturing offers a stronger base
for raising the level
Nature of Industry in Development
 Heavy industry- large scale production of capital
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goods: iron, steel, machine tools, car production,
ship building
Location determined by access to and
availability of raw materials
Requires well developed transport infrastructure
and power supply
Heavy capital investment
High proportion of relatively skilled workers
Large scale to achieve economies of scale
Nature of Industry in Development
 Light industries- generally refer to consumer
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goods: paints, tools, etc
Relies on semi-processed as opposed to raw
materials
Less energy per laborer required
Less complex machinery and lower capital
investment – operations in simpler buildings
Scale of operations more suited to small, limited
markets
Progression of Industry as Development
Matures
 Processing of low value, locally available
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materials or resources Examples: vegetable oil
and sugar milling, pineapple and fish canning,
jute and cotton spinning, timber, pulp
Processing materials previously exported as raw
to increase earnings from export of finished
products Example: rubber
Industries which produce goods for agricultural
sector: tools, insecticides, pesticides
Manufacturing of cheap consumer goods:
cigarettes, soft drinks, sauces, batteries,
bicycles, food products
Industries using local skills and traditions: rattan
and textile (batik)
Strategies for Industry
 Import Substitution Industry (ISI)- produce locally
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more goods previously imported
Manufacturing done behind high tariff walls or
quota policies
Too often results in production of non-essential
consumer goods for a limited segment of the
urban market ignoring rural areas
Contributes little to a diversified and significant
export structure since investments are absorbed
by inefficient production firms
Usually discouraged in structural adjustment
programs (SAPs)
Structural Adjustment Programs
 Used to describe generically the activities of the
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World Bank and International Monetary Fund in
packages of policy reform
Central aims of these programs are to:
Reduce debt that has accumulated
Introduce policy and institutional change
necessary to modify structure of economy
Move from agrarian dominance to
industrialization
Instruments: currency devaluation, monetary
discipline, reduction of pubic spending, trade
liberalization, privatization of public enterprises,
wage restraints, subsidy removal, institutional
reform-especially financial
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Principal Instruments of Structural Adjustment
Currency devaluation-encourage trade
Monetary discipline- interest rate control
Reduction of public spending- lower expenses
on “grandiose” projects
Price reforms- price commodities to sell and
reward producers
Trade liberalization- remove tariff barriers to
ease flows of trade
Reduction and/or removal of subsidiesespecially gasoline
Privatization of public enterprises- sell SOEs to
private firms
Wage restraints- control wage levels
Institutional reforms- improve credit and
especially banking sector
Cottage and Small Scale Industries:
Textile, Batik and Handicrafts
Cottage and Small Scale Industries
 Often outside scope of modern manufacturing
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organization
Carried on in rural areas, family and local labor
which is unskilled- full or part time
Batik- complex, low productivity per worker
absence of power-often high import content
(higher quality cotton)
But provide a good for export markets
Provide employment opportunities for largely
illiterate workforce
Too often unimaginative design, crude
workmanship, tend to withdraw into areas where
few alternative opportunities
Strategies for Industry
 Export Oriented Industry (EOI)
 State is producing goods for export and
engaged in trade as a means of expanding
national revenues
 Protection is decreased while diversified exports,
often with subsidies, are promoted through an
aggressive trade policy
 Increasing demanded under SAPs so
manufacturing becomes secure
Constraints on Industrializing Progress
 Legacy of colonial rule when industry was
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suppressed
Deficient infrastructure especially transport
Capital shortage to invest in new opportunities
Low educational levels
Lack of entrepreneurial skills
Limited size of market
Corruption, weak legal system and lack of
transparency reduces appeal of foreign
investors