Question

Discuss why industrialization is a necessary step for developing nations to undertake to achieve structural transformation. Do you think a developing economy would be better off by transforming its economic structure directly from agriculture to service sector, skipping the industrialization phase? If yes, explain why? If no, explain why?

Answer 1

The industrialization is a necessary step for developing nations to undertake to achieve structural transformation because of the following reasons –

• Development of industries would increase the demand of primary goods like Agricultural products. Hence it will further boost the Agricultural/Primary sector.
• The industries require the development of better infrastructures like roadways, railways, electricity etc. Hence it will enable the better infrastructure in country which would further decrease the logistics cost.
• Industries would absorb the surplus labour from Agricultural sector. Hence it would address the problem of seasonal unemployment and disguised unemployment.
• It would increase the employment level of country.
• The development of Industrialisation would ultimately result in better development of service sectors in the future. Without development of Industrialisation the service sector will not be able to sustain the economy in terms of employment and wages.

No, the developing economy could not be better off by transforming its economic structure directly from agriculture to service sector, skipping the industrialization phase. This is because it the developing economy would skip industrialization, then it would result in Economic disaster for example - Income level of service sector would become very high as compared to employment level because most service sectors would be global oriented which requires very small yet skilled labour. The service sectors develop out of industries absorbs more labour but it is not there due to absence of industries. Also the inequality among citizens would increase due to low income & high labour force in primary/Agricultural sector and high income & low labour force in sefvice sector. The Balance of Payment would also be deficit because in the absence of native industries goods, the country would start importing foreign goods in huge amount.