Structural transformation from agriculture to industry in developing countries

Economics

Agriculture and Industry

This is a paper about switching technique from Agriculture to Industry. There is one reference used for this paper.

There are a number of changes occurring in agriculture and industry today. It is important to examine the switching technique utilized between these two entities, and what developing countries need to know to successfully become industrialized.

Industrialization

Industrialization is seen as a way to increase economic growth. It "requires the expanded use of new technological processes and ways of doing and thinking, a more skilled and productive labor force and entrepreneurial cadre, and the expansion of physical capital investment at the enterprise level and in the economy as a whole, including physical and social infrastructure formation (Cypher, 266)."

Industrialization has been met with resistance since it "disrupts patterns of life and ways of doing things, particularly in the countryside (Cypher, 266)." Influential organizations in underdeveloped countries may feel their position is threatened, and oppose industrialization. In other situations "opposition comes from religious or cultural institutions which see a way of spiritual life threatened by the material concerns of industrialization and the private acquisitiveness on which it thrives (Cypher, 266)."

Agricultural Sector

Studies have shown that the "size of the agricultural, or primary, sector tends to shrink with economic growth, as rural workers move into the industrial, or secondary, and service, or tertiary, sectors (Cypher, 268)." As workers become needed to run machines in industries, there is a labor migration from rural to urban areas.

During successful industrial transformations, agricultural production also becomes more efficient and intensive in its use of capital, both physical and human, and in the use of technology which increases worker productivity (Cypher, 268)."

This leads in an increase in the economy as workers migrate from industry to service jobs, increasing their earning potential.

There is an inverse relationship between the percentage of the workforce involved in the agricultural sector, the per capita income, and the development level. The "higher the level of development, the smaller the share of the labor force engaged in agriculture, while the smaller the share of the labor force in industry and services, the lower the level of income and development of the country or region; the higher that share, the higher the level of aggregate income and development (Cypher, 269)."

Development and Structural Transformation

There must be a "reorganization of the agrarian sector and an industrial revolution (Cypher, 270) for development to occur.

The initiating of structural transformation begins with "easy import substitution industrialization or ISI (Cypher, 276)." All nations which have been successful in industrializing have utilized this stage. ISI is needed because "in less-developed nations there are few or no local companies that are likely to exist that can effectively produce and compete with imported goods (Cypher, 276)."

During the easy ISI stage, the "labor force develops both specific and general human capital skills as a result of 'learning-by-doing' in working with modern machines and technology. Management and other essential entrepreneurial skills will be acquired and improved during this stage, capacities that are integral to successful and sustained industrialization over the long-term (Cypher, 288)."

After ISI, there are 2 pathways of industrialization a country can follow: "easy export substitution and 'hard' or secondary ISI (Cypher, 302)." As the exports of ISI firms "begin to replace and substitute for traditional primary imports, the peripheral economy's export structure will begin to become more like that of developed nations (Cypher, 303)." Export substitution is the "logical and recommended stage of evolution in development strategy as the gains from easy ISI begin to be exhausted (Cypher, 304)."

Lessons for Underdeveloped Nations

Less-developed nations need to understand that is it important for countries with small economies to "focus on a limited range of ISI products, then expand into exporting as efficiency levels improve (Cypher, 321)." They must realize that though countries with larger economies experience a "higher level of domestic demand and have more opportunities for both substituting and exporting, they are also faced with more pitfalls (Cypher, 321)."

Conclusion

The switch from agriculture to industry can have a positive effect on developing nations, although there will often be resistance in the beginning.

In order for the nation to make the switch successfully, it must follow proven methods utilized by other countries as they began their industrializations. The underdeveloped nations should not rush the process, or financial setbacks can occur. If the proper steps are taken, workers can easily make the transition from the rural agricultural to the urban industrialized sector and realize greater earning potential.