Outline How and Why the Sectoral Balance of an Economy Might Change as It Develops

a)

When studying the pattern of sectoral change as a country develops, we look at the three main economic sectors. Namely the “primary sector”; which is the extractive such as agriculture, forestry, fishing etc. These industries exploit the natural resources of the country. The “secondary sector” is next; it is manufacturing and construction, using the materials extracted by the primary sector. The third sector “tertiary sector” produces services such as transport, financial and leisure.

Typically countries go through a similar pattern of sectoral change, from the first stage of primary dominance, onto secondary and finally ending with tertiary dominance.

The first stage of primary dominance is based on the Agrarian society, with its economy based on agriculture. There is some surplus production that leads to the desire for trade, coherently creating the leisured class. Scientific discoveries lead to technological change which, when applied to agriculture made more efficiently produced goods. The demand for secondary products such as machinery rises and people want to become more and more efficient in production, thus begins the growth of the secondary sector.

Stage two continues the growth of the secondary sector, the machinery produced beings to replace the works in the countryside and agriculture creating unemployment. These unemployed move into the secondary sector so, the primary sector releases labour into the cities where jobs were in manufacturing were available due to the new high demand for machinery. Urbanisation occurs with the growth of towns and cities to house the workers in the factories and others moving there.

The profits earned add to the amount of trade and so the rise in demand for services such as retail; as people wanted to spend the profits, banking to cater for people wanting to save or borrow money as well as many other services.

Onto the third and final stage of “tertiary dominance”, the urbanisation and continual profit making of the secondary sector industries lead to an increase in GDP per head. These higher incomes are likely to be spent on goods and services. Income elasticity of demand for products and services becomes important, this being how quantity demanded of a good or service changes with changes in income. Both luxury items and services are highly income elastic, so as income rises the demand for these will also rise considerably.

So there will be more spending on services, as the workers become more productive through improvements in technology, their will work less hours, leading to an increase in leisure time and spending. As people gain more income the demand to save will rise as well the banking and investment services. Similarly higher tax revenues will lead to a large increase and public services. There are though exceptions