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The Role of Industrialization in Development Economics Essay


Introduction

Developing countries also referred to as less developed countries are those nations characterized by poor standards of living, low per capita income, underutilized industrial potential and low level of human development index, in comparison to other nations.

A developed country on the contrary is defined as a country which has the potential of providing its citizens with a healthy safe and free environment to live in. besides the parameters mentioned above, international monetary fund also includes export diversification and the level of incorporation into the universal financial system as part of the distinguishing features between developing countries and developed countries (Cody, Hughes and Wall 1980, p. 34).

Most developing countries depend on foreign aid for growth and this creates a vicious cycle since in the long run the country ends up in a state of neocolonialism.

Characteristics of developing countries

There are a number of characteristics common to all developing countries. The first one is low living standards across the country. This is depicted by poor housing, inadequate medical facilities, poor living conditions, high infant mortality rates, high levels of illiteracy and lack of proper nutrition among the citizens.

The second characteristic of developing countries is low productivity. This is as a result of lack of education, lack of health protection measures in the work place resulting in many deaths, lack of physical capital and low levels of technological knowhow (Degregori 1989, p.56). The third one is the demographic factor in that developing countries are known for being overpopulated.

This is as a result of the high birth rates brought about by lack of proper knowledge on birth control and lack of resources to access these services. The result of this is high dependency rates hence the tendency to live just within the sustainable means. Next is over dependence on agriculture which happens to be the main economic activity in most developing countries. The population of people working in this sector is way higher compared to the returns implying that the level of output per person is low.

Developing countries are also characterized by low levels of industrialization. Despite being the major producers of raw materials, they are not able to process these materials into finished products hence remain at the primary level of production. Besides that, these countries lack well developed infrastructure in the form of road networks, clean water supply system and financial services which are essential elements for the growth of any economy.

The other characteristic is underutilization of natural resources which are the main sources of wealth for these countries. However, this is as a result of lack of machinery to explore these resources. As a result, foreign investors take up these resources and export them to their respective countries at very low prices. Finally is the vicious cycle of poverty which seems to be having no end.

In fact there is a notion that goes a country is poor because it is poor. The income levels in these countries are only able to sustain the masses at the present meaning that there are no savings (Borrmann and Wolff 1991, p.87). Lack of savings means no investments and subsequently low levels of production and back to low income. This cycle can only be broken from the point of investment since this is can be done from many other sources such as borrowing though not encouraged.

Importance of investing in the industrial sector

Industrialization is defined as the process of transforming an economy from reliance on agriculture and natural resource mining to the service and manufacturing sectors. This process differs from one country to another depending on the availability of technology and physical capital.

Industrialization however plays a very important role in economic development since it determines the future growth prospects. The economic activities being carried out in an economy are normally divided into five broad categories. The first one is the primary sector which encompasses activities such as mining, agriculture, forestry, fishing and hunting. Second is the secondary sector which includes manufacturing and processing of raw materials.

The third category is the tertiary sector mostly made up of financial services providers. The service sector comes next and it includes service providers such as transporters, warehouse operators, and other such services in the production chain. Finally is the knowledge sector which involves educational institutions. All these sectors are vital to the growth and development of any economy since they all work hand in hand.

When an economy is undergoing industrialization, economic development in inevitable since there is a balance in the different sectors of the economy. Industrialization brings along the development of the other sectors besides the primary sector. Underdeveloped and developing countries are known for overreliance on the primary sector especially agriculture which over time has become saturated and less productive (Priyarsono 2010).

This is made worse by the recurring vicious cycle of poverty which sees to it that the economy remains at the same level and unable to satisfy the needs of its citizens in terms of education, health facilities and food production as well. From this therefore, investment in industrialization is the only way that the developing countries can be able to improve their condition within a short period of time. There are a number of ways in which industrialization leads to economic development and these are highlighted in the paragraphs that follow.

Utilization of human capital

Human capital refers to the laborers and this is known to be of very high level in the developing countries. The high population ensures that the workforce is available. Most of these people however tend to work in the primary sector where their productivity reduce with time. With the setting up of industries, these industries will provide more employment opportunities hence increasing the output per head of the working population.

The presence of a high population with less productivity is one of the most serious problems being experienced in the developing countries. These developing countries are known for registering the highest birth rates meaning that the issue will continue to be a bother for years to come (Todaro and Smith 2011, p. 12). Investing in heavy industries therefore plays a major role in solving this problem.

This is because it creates employment for the masses hence increasing the level of productivity per head. This will ensure that households are able to sustain themselves though the extra income earned by working in the industries. They will also be able to save for their future needs and consequently invest more. This is the only way the vicious cycle of poverty will be broken and the economy will be able to move towards development. This might not be an instant result but it will be evident over time as the poverty cycle is broken.

Unemployment is a major problem in the developing countries and this in some cases is not due to lack of jobs but as a result of lack of skilled human capital. This is mainly caused by the lack of other sources of employment besides the primary sector. For example, where agriculture is the main source of income, people working in farms remain unemployed after the planting season is over and creates a lot of idleness.

The result of this is high crime rates, and many other forms of socially unacceptable behaviors. Industrialization creates alternative sources of employment especially during the seasons between planting and harvesting (Ray 1998, p. 52). Instead of sitting idle, farmers would take up casual jobs in the industries. This would not only increase the income earned by these people but it would also ensure that there is security since people are preoccupied with income earning activities.

Utilization of natural resources

Developing countries are famous for harboring the world’s most treasured natural resources. These include forests, productive agricultural lands, wild animals, minerals, water resources and so on. These resources however remained untapped or misused in one way or another hence wasting a great potential for wealth creation. In cases where the resources are being utilized in the correct manner, it is normally through the intervention of international bodies which apparently intervene for their personal gain.

In other cases, these resources are being used by the local communities but for the wrong reasons (Thirwall 2011, p.10). Take for example cases where trees are being cut for firewood and charcoal production or forests being destroyed to pave way for agricultural practices. As a result of this kind of misuse, these resources do not yield the returns they are capable of yielding hence a misuse.

The main reason behind the underutilization of natural resources in the developing countries is lack of enough physical capital to utilize the resources as they ought to be utilized. Industrialization is one way of creating an avenue where these economies will be able to use their resources effectively.

Setting up these industries will ensure that raw materials are not exported in their raw form. Raw materials are usually relatively cheaper compared to their end products and this means that by selling the raw materials, developing countries go at a loss. Setting up industries in these countries will ensure that they make use of these materials and export finished products which are more profitable.

A good example of this is the production of hydroelectric power from the water resources. A huge percentage of hydroelectric potential lies in the developing countries which lack the effective technology to fully utilize these resources (Meier and Rauch 2005, p.45). For the same reason, most mines lie idle and the cash crops produced in the agricultural sector are also underutilized or used for the different reasons other than increasing the country’s disposable income.

Reduction of imports and value addition to exports

Most of the finished products being consumed in developing countries are usually imported while ironically the raw materials used in such productions are produced locally. The countries which are already developed in the industrial sector purchase these raw products for processing. They then sell the finished products at very high prices to the developing countries (Ellman 1989, p.33).

This shows how lack of industrialization increases the cost of obtaining processed products despite being the suppliers of the raw materials. The primary sector of the economy which comes first in the production chain normally has the lowest returns since there is little or no value addition to the process. Being the main export from the developing countries, the contribution to economic development is low hence the gross national income remains low as well.

From this, a deduction can be made that investing in industries plays an important role in improving the balance of trade. An optimal balance of trade is where the level of imports is equal to the level of exports or if they vary, it is with a small margin. With the current condition in most developing countries where imports exceed exports by a huge margin, the result is unbalanced or unfavorable terms of trade and consequently an unfavorable balance of payment.

When these developing economies embrace industrialization, first they will create a market for their raw materials hence avoiding exploitation from the importing countries. Second they will reduce their imports since they will be able to produce their own finished products (Lewis 2003, p.67). This means that the balance of payment and terms of trade will also increase. The economy will be able to have a surplus to invest more hence speeding up the level of development.

Besides improving the terms of trade and balance of payment, having more exports compared to imports also improves the economic status of a country by reducing debts. This is brought about by the fact that the country is able to sustain its projects from the export proceeds hence reducing external debts.

Debts are one of the reasons as to why most developing countries are unable to operate independently. The donors tend to have a huge say in the development activities being carried out in these countries. In most cases, they import the materials from their own countries irrespective of whether these materials are found locally. In some cases, they also import their own labor instead of making use of the local citizens.

From this therefore the country ends up not benefiting from the projects even in terms of creation of employment. This condition can be changed by making huge investments in industries which will ensure that the country can sustain itself without external borrowing hence having the full control of all ongoing development projects.

Improvement in infrastructure

Infrastructure in this case includes transport network, communication network, financial services, educational facilities and health facilities among others. This is one of the major challenges being faced by developing countries in the sense that they are not able to provide enough of these facilities. Industrialization and infrastructural development are synonymous since the industries need these infrastructures for them to operate effectively (Ghatak 1978, p.77).

In the areas where the industries are being developed, there has to be enough housing to cater for the employees working in the industries. There also has to be schools for the children of the employees. Besides this there has to be a health facility since this is one of the basic needs in a community. The industries require skilled workers to do the white collar jobs and this therefore means that they will attract institutions of higher learning as well.

Besides this kind of infrastructure, there is also the transport network. Raw materials need to be transported from the farms to the industries and finished products from the industries to the market (United Nations Industrial Development Organization and United Nations 1958).

This requires a well established transport system which will ensure that even perishable goods are able to reach their destinations on time. A reliable and well established transport network is one of the characteristic of developed countries and by implementing this, the developing countries will by all means be moving towards development.

The other type of infrastructure that comes along with industrial investments is the financial service providers. These include commercial banks, housing finance, micro credit finance, savings and lending services among others. These institutions play a vital role in the development of any economy since they control the interest rates and the level of inflation in an economy.

Conclusion

From this discussion, industrialization plays a major role in the pace of development in the developing countries both directly and indirectly. Industrialization comes with many other things as mentioned above and it is clear that the easiest way for an economy to break the vicious cycle of poverty and move towards development is by investing in heavy industries which have high returns despite the high cost of initial investment (United Nations Industrial Development Organization 1998).

Once fully operational these industries can change the status of a country from developing to developed economy by increasing the gross national income, creating employment opportunities and consequently improving the living standards of the people. Developing countries are therefore urged to take up the challenge and carry out these investments if they are to increase their productivity, get out of debts and be able to sustain its citizens.

References

Borrmann, A. & Wolff, H. 1991, Industrialization in Developing Countries, Verlag Weltarchiv, Hamburg.

Cody, J., Hughes, H., & Wall, D. 1980, Policies for Industrial progress in Developing Countries, Oxford University press, New York.

Degregori, T. 1989, Development Economics, Kluwer Academic Publishers, Boston.

Ellman, M. 1989, Socialist Planning, Cambridge University Press, Cambridge.

Ghatak, S. 1978, Development Economics, Longman, London.

Lewis, W. 2003, Development economics. Theory of Economic Growth, Routledge. London.

Meier, G. & Rauch, J. 2005, Leading Issues in Economic Development, Oxford University Press, Oxford.

Priyarsono, D. 2010, . Web.

Ray, D. 1998, Development Economics, Princeton University Press, Princeton.

Thirlwall, A. 2011, Economics of Development, Palgrave Macmillan, London.

Todaro, M. and Smith, S. 2011, Economic Development, Addison Wesley, London.

, 1998, Industrial development report. Web.

United Nations Industrial Development Organization, & United Nations. 1958, . Web.

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