CHAPTER 6:
Industrialization
and Structural
Change
Group 3:
Hannah Anmellie Escubedo
Allyssa Marie Laforteza
Danessa Kim Oviedo
Bea Lyn Ballesteros
Lyca Mae Sazon
Victor Cayago
6.1 Introduction: Industry as a Leading Sector
INDUSTRIALIZATION- the process by which an economy is
transformed from primarily agricultural to one based on the
manufacturing of goods. Individual manual labor is often replaced by
mechanized mass production, and craftsmen are replaced by
assembly lines.
Characteristics of Industrialization include economic growth,
more efficient division of labor, and the use of technological
innovation to solve problems as opposed to dependency on
conditions outside human control.
STRUCTURAL CHANGE- refers to dramatic shift in the way a
country, industry, or market operates, usually brought on by major
economic developments. The key to effect structural change is the
dynamism that is inherent in that system.
6.2 A Model Structural Change
Lewis-Fei-Ranis- a dualism model in developmental economics
or welfare economic. It is also know as the surplus labor model.
Two sector of the model
°Traditional and Modern
°Agricultural and Industrial, or Rural and Urban
6.2.1 What are the Features of this Model?
°Capital Accumulation
°Labour Supply
°Integration to the World Economy
6.2.2 Introduction of Trade into the LFR Model
When introducing the possibilities of trade, the model becomes
more complex but the basic features remain.
6.3 Backward and Forward Linkages
The interaction between the industrial and rural sectors can
be studied using the concept of backward and forward linkages.
6.3.1 Indirect Backward Linkages
Secondary effects which growth in an industry has on its
suppliers. Industries that have strong backward linkages have low
value-added and a large input from local suppliers.
6.3.2 Forward Linkages
It tell us how a product is related as an input into the production
of a product at the next stage-- textiles into apparel, for example,
petroleum into plastics. Forward Linkages are a good indication of the
extent to which an economy can upgrade its industrial base by using
its existing expertise and resource base.
6.4 Aspects of Industrial Development
• Choice of Technology
• Economies of Scale
6.4.1 Choice of Technology
• In the early stages of industrialization, countries have limited capital and
plentiful labor
• Labor-intensive technologies may be appropriate in a poor country with
plenty of low-skilled and cheap labor but because of factor market
distortions, the choice of technology may be more capital-intensive.
6.4.2 Economies of Scale
- a proportionate saving in cost gained by an increased level of production.
• Economies of scale come into play when a country is exporting, or when
production is taking place on a large of scale for the domestic market
• The standard for measuring the efficiency of an industry is to use the
price of imports.
6.5 EFFICIENCY ISSUES
6.5.1 Economic Efficiency and Scale of Production
• Efficiency depends upon a number of special factors.
• It may be that all firms can be efficient if they have reached a viable size of
production that takes full advantage of economies of scale
• Better transport and communication also make it possible to have a
nationwide production, marketing and distribution strategy.
6.5.2 Do Protected Industries Become Efficient Over Time?
• Evidence suggests that there are numerous pitfalls to a strategy of
protecting infant industries
• These industries and firms will eventually be forced to compete in external
markets.
• In order to become competitive, they should be in an industry where the
country has a comparative advantage or else they will be inefficient
6.5.3 Are There Advantages to Small-Scale Industrial Development?
• Scale-scale enterprisee (or small and medium enterprises-- SMEs) are
generally more labor intensive.
• Small-scale firms can be very successful when they concentrate in particular
locations where they can share a skilled labor force base and where they can
produce differentiated products of high quality.
6.6 Foreign Trade
• Export are critical in explaining productivity gains in the asian
economies. internal competition does not seem to be sufficient to
bring about high rates of productivity increase.
• Example, large country with low industrial concentration ratios,
efficiency rates are still low.
6.7 Other Transition Issues
Indonesia has not been able to make the transition because of this following
reasons:
1. Indonesia still has a large oil and natural gas sector.
2. It had a late start in the industrialization.
3. It has a labor force that lacks education.
4. They dominated much of its development thinking.
6.8 The Asian Experience with Industrialization
From the mid-1960s to the late 1990s, the growth rate of the East Asian
economies of Hong Kong, Korea, and Taiwan, together with Singapore in
Southest Asia - sometimes called the Asian "tigers", or the newly
industrialized economies(NIEs) - grew at a faster rate than any other
economy or group of economies had in history (World Bank, 1993; and
Quibria, 2002).
6.8.1 A Further Look at Total Factor Productivity(TFP)
•The reason for the rapid growth was brute force application of a simple
Harrod-Domar growth model augmented by the growth of the population.
•In order to sustain a rapidly growing industrial sector in a quickly evolving
global environment, much more is required than just a high rate of
investment and appropriate pricing of inputs and incentives for export.
6.8.2 Historical Transformation of the Industrial Sector
- to give you an idea of how the structure of industries within these
economies has changed over time consider a snapshot of their industrial
sector in the early 1960s, 1975, and 1990.
Five Components:
1. Resource - based industries that include aluminum, food, and oil refining
as examples.
2. Labor - intensive industries, including garments, footwear, and toys.
3. Scale - intensive industries, including steel, automobiles, paper, and
chemicals.
4. Differential industrial products, including TVs, power equipment, and
advanced machinery.
5. Science - basee industries, including electronics, pharmaceuticals, and
biotechnology.
6.8.3 The Electronics Sector
in order to examine the structure transformation in the industrial sectors of
the NIEs and to look more closely at the role of technology, it is useful to
focus on the electronics industry.
6.8.4 Different Patterns of Technological Transfer
- the methods varied from economy to economy
There were four basic factors underpinning their success:
1. Firms benefited from low rates of interest, low inflation, and high rates of
saving within the economies.
2. They all respond to the open and outward-looking export-led strategies that
were generally followed.
3. All the NIEs developed an appropriate human resource development
strategy that complemented and provided trained workers for the growing
industrial sector.
4. Government intervention was undertaken whenever it was needed.
6.8.5 Country Experiences
- hence, over the years, the Asian countries have actively developed their
electronics sector although there are differences in thier field of
specialization owing to differences in the labor force and technological
advances.