Economic Sector Shifts: Primary, Industry, and Services
Sectoral Changes in Economic Development
1. Primary Sector: Agriculture
The primary sector often characterizes underdeveloped economies. As countries develop, the primary sector tends to decrease in importance, freeing up resources for other sectors, particularly industry. This shift is reinforced by changes in a country’s demand structure as income levels rise.
Initially, higher industrial productivity attracts workers. Later, agricultural productivity increases. Economic development leads to agriculture’s reduced significance. A poorly functioning agricultural sector can worsen the balance of payments and increase the prices of primary goods for other sectors.
Global agriculture has undergone significant changes, including restructuring, modernization, and productivity improvements, overcoming chronic food shortages. These improvements are due to increased crop production, mechanization, capital-intensive techniques, and the use of new intermediate outputs.
Demand is influenced by population, income, eating habits, and preferences. Supply depends on the availability of natural resources. Potential production increases offer wide margins for improvement in global food supply. The Green Revolution involves growing mechanization, biological technologies, and technological advancements responding to evolving factor price relationships.
Traditional vs. Modern Agriculture
- Traditional Agriculture: Based on techniques without technological advances and with low productivity. This prevents resource investment, resulting in low capitalization and high labor intensity. The workforce is cheap, and farms tend to be small and non-specialized.
- Modern Agriculture: Characterized by greater productivity and the substitution of traditional outputs for industrial and service inputs. Inputs like manual labor and animal traction are replaced by machinery, fertilizers, and seeds. Productivity improvement is driven by technological change in the sector, including the agri-food industry.
Public Sector Support for Agriculture
Agriculture has traditionally been supported by the public sector through subsidies and protection from competition. Reasons include structuring the territory to avoid rural depopulation, strategic self-sufficiency, price volatility of farm products, and deteriorating prices and incomes for farmers.
Instruments to Favor Agriculture
The instruments to favor agriculture include:
- Structural measures to improve producer efficiency.
- Subsidies linked to the provision of certain outputs and machinery.
- Price stabilization measures, such as “regulatory stocks.”
- Income support measures.
Negative Effects of Agricultural Policies
The negative effects of agricultural policies include:
- Higher consumer prices.
- Sale of production without internal demand at low prices.
- Market distortions.
2. Industry
Industry tends to lead productivity improvements because it easily assimilates technological progress and new techniques. Specialization, modernization, and innovation are preconditions for economic progress. Industry enjoys higher multipliers because it transforms and manufactures intermediate products. Industrial production can be easily exported, allowing firms to exploit economies of scale.
The structure and organization of industrial markets condition the performance and evolution of companies. The level of competition is needed to explain the efficiency and innovation of companies. Often, prices cannot be higher than the average cost of production due to high competitive pressure, which leads companies to innovate and improve product processes.
Factors that can avoid perfect competition include excessive concentration of supply, economic barriers to entry, and institutional variables.
3. Tertiary Sector: Services
Peculiarities of the service markets:
- Service consumption tends to be simultaneous with production, preventing storage and forcing temporal and spatial coincidence between production and consumption.
- Market failure: moral hazard and adverse selection.
The service sector has gained weight to become the main sector of activity:
Demand Perspective
Service consumption is considered a luxury good, as an increase in income causes a bigger increase in its demand.
Supply Perspective
The service sector is conditioned by the fact that its relative productivity usually grows at lower rates than the rest of the sectors. Less effective competition means less incentive to increase efficiency and productivity.