Global development issues Notes:
Szirmai:
Chap 8: economic development, structural change and industrialization
Context:
Level of economic welfare is limited in traditional agriculture-based economy if daily production is
low (when work w/ bare hands w/out tools etc…)
o Raise labor productivity through capital accumulation (ie: provide workers w/ tools,
implements and machines)
Economic development & capital accumulation linked to structural change
o Associated w/ emergence of industrial sector
o But: industrialization not only one to incite structural
change
Service sector also becoming more important over time
But manufacturing continues to be engine of
growth in developing countries
Four classifications of sectorial distinctions:
But:
concerning structural change –
classifications can be referred to carelessly
This chap emphasizes on relationships
between agriculture and manufacturing in
economic development
o Agriculture = subsistence
production and market production
of foodstuffs and other agricultural
products by both smallholders and
large commercial farms and
plantations
Focus on distinction between primary &
secondary sectors
o Role of primary exports in eco dev
o Primary exports = agricultural
exports and mining exports
1
, Structural change = refer to all sorts of changes in the structure of employment and output. It can
refer to the emergence of manufacturing, the emergence of non-traditional exports, or the
increasing importance of services. It can also refer to process of de-industrialisation
Economic development (Clark & Kuznets) = involves a structural transformation in which factors of
production are transferred from the sector with the lowest productivity, agriculture, to the industrial
sector where productivity is much higher and the pace of technological change and productivity
growth is more rapid
Capital accumulation and structural change:
Capital:
o Concrete sense: refers to the physical stock of machines, implements, buildings and devices
used in the process of production. Economists usually define capital in this sense as
produced means of production, with a lifetime of at least one year
o Financial sense: refers to a hoarded number of financial means and securities. In explaining
economic growth, we are primarily interested in the growth of physical stocks of capital per
person employed
Relationship between capital accumulation and industrialization:
concentrated nature of factory production which offered and still offers the greatest opportunities
for capital accumulation and increases in the scale of production
industry = refers to manufacturing, mining, construction and utilities (supply of gas, electricity and
water) but manufacturing is most important
Industrialization development:
manufacturing as engine of growth – arguments:
o correlation between industrialization & eco dev
at lower levels of income (ie: low GDP, developing countries) there is a positive
relationship between share of manufacturing and income level
but: stagnates at middle-income levels
industrialization more important for growth at lower levels of income per capita
o Structural change bonus
Productivity higher in manufacturing than in agricultural
Major source of growth in developing country transfer from low productivity
agriculture to high productivity industry results in immediate increase in overall
productivity and income per capita
o Structural change burden
Transfer of resources (structural change) to a service sector with slow productivity
growth provides burden
Limit to productivity growth in services due to labor-intensive nature of activities
Slower rates of growth of advanced service economies compared to developing and
emerging countries
Modern service sector are still capable of rapid productivity improvements (eg: IT
services, transport, communication, logistics)
o Linkage effects
Forward and backward linkage effects in manufacturing stronger than in agriculture
and mining
2
Szirmai:
Chap 8: economic development, structural change and industrialization
Context:
Level of economic welfare is limited in traditional agriculture-based economy if daily production is
low (when work w/ bare hands w/out tools etc…)
o Raise labor productivity through capital accumulation (ie: provide workers w/ tools,
implements and machines)
Economic development & capital accumulation linked to structural change
o Associated w/ emergence of industrial sector
o But: industrialization not only one to incite structural
change
Service sector also becoming more important over time
But manufacturing continues to be engine of
growth in developing countries
Four classifications of sectorial distinctions:
But:
concerning structural change –
classifications can be referred to carelessly
This chap emphasizes on relationships
between agriculture and manufacturing in
economic development
o Agriculture = subsistence
production and market production
of foodstuffs and other agricultural
products by both smallholders and
large commercial farms and
plantations
Focus on distinction between primary &
secondary sectors
o Role of primary exports in eco dev
o Primary exports = agricultural
exports and mining exports
1
, Structural change = refer to all sorts of changes in the structure of employment and output. It can
refer to the emergence of manufacturing, the emergence of non-traditional exports, or the
increasing importance of services. It can also refer to process of de-industrialisation
Economic development (Clark & Kuznets) = involves a structural transformation in which factors of
production are transferred from the sector with the lowest productivity, agriculture, to the industrial
sector where productivity is much higher and the pace of technological change and productivity
growth is more rapid
Capital accumulation and structural change:
Capital:
o Concrete sense: refers to the physical stock of machines, implements, buildings and devices
used in the process of production. Economists usually define capital in this sense as
produced means of production, with a lifetime of at least one year
o Financial sense: refers to a hoarded number of financial means and securities. In explaining
economic growth, we are primarily interested in the growth of physical stocks of capital per
person employed
Relationship between capital accumulation and industrialization:
concentrated nature of factory production which offered and still offers the greatest opportunities
for capital accumulation and increases in the scale of production
industry = refers to manufacturing, mining, construction and utilities (supply of gas, electricity and
water) but manufacturing is most important
Industrialization development:
manufacturing as engine of growth – arguments:
o correlation between industrialization & eco dev
at lower levels of income (ie: low GDP, developing countries) there is a positive
relationship between share of manufacturing and income level
but: stagnates at middle-income levels
industrialization more important for growth at lower levels of income per capita
o Structural change bonus
Productivity higher in manufacturing than in agricultural
Major source of growth in developing country transfer from low productivity
agriculture to high productivity industry results in immediate increase in overall
productivity and income per capita
o Structural change burden
Transfer of resources (structural change) to a service sector with slow productivity
growth provides burden
Limit to productivity growth in services due to labor-intensive nature of activities
Slower rates of growth of advanced service economies compared to developing and
emerging countries
Modern service sector are still capable of rapid productivity improvements (eg: IT
services, transport, communication, logistics)
o Linkage effects
Forward and backward linkage effects in manufacturing stronger than in agriculture
and mining
2
