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Beyond Industrialization: New Approaches to Development Strategy Based on the Service Sector

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  • Sheehan, Peter

Abstract

Industrialization occupies a central place in the rich tapestry of development theory and practice. Although that place has varied over time, many have agreed with Nicholas Kaldor that the kind of economic growth that leads to high real income per capita can only occur through industrialization. This paper argues that it is becoming increasingly difficult for most developing countries to achieve rapid growth through industrialization, and especially through export oriented activities. But the key mechanisms seen as driving the industrial take-off in much of the literature (internal increasing returns, transfer of labour into higher value activities and pecuniary externalities) are alive and well, and are evident in services as well as in industry. Furthermore, China is actively trying to move from a strategy based on industrialization to one based much more on agriculture and services, as the costs of the current pattern of industrialization become prohibitive, and India has demonstrated that rapid growth based primarily on the services sector is possible. Thus more attention needs to be given to strategies based on the expansion of the agricultural and services sectors, and to the ways in which better services in rural areas and higher rural output can combine to achieve rapid growth and improved human welfare in poor countries.

Suggested Citation

  • Sheehan, Peter, 2008. "Beyond Industrialization: New Approaches to Development Strategy Based on the Service Sector," WIDER Working Paper Series 060, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:rp2008-60
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    File URL: http://www.wider.unu.edu/sites/default/files/rp2008-60.pdf
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    References listed on IDEAS

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    3. Elena Ianchovichina & Terrie Walmsley, 2005. "Impact of China's WTO Accession on East Asia," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 261-277, April.
    4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    6. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    7. Dasgupta, Sukti & Singh, Ajit, 2006. "Manufacturing, Services and Premature Deindustrialization in Developing Countries: A Kaldorian Analysis," WIDER Working Paper Series 049, World Institute for Development Economic Research (UNU-WIDER).
    8. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    9. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2007. "China and the Exports of Other Asian Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(2), pages 201-226, July.
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    Cited by:

    1. Eva Näfe & Barbara von Toll, 2011. "Is Broad Industrialisation Imperative for Development? Case Studies on Uganda and Tanzania," Competence Centre on Money, Trade, Finance and Development 1105, Hochschule fuer Technik und Wirtschaft, Berlin.

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    Keywords

    industrialization; services; development strategy; rapid growth;

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