The Only Way for Developing Country Economies to Grow Is through Industrialisation - Essay Example

Industrialization and Growth of Developing Countries Introduction Sectoral composition changes in trade and production forms a centrepiece in structural transformation and this influences economic development in developing countries. Integration of technology to promote industrialization in the developing countries is a major contribution to the development process in these countries. Research survey emphasizes on mechanisms that will lead to incorporating industrial activities in developing countries so that they can initiate different production and trade structures. However, spread of industry may not be a smooth process especially to countries whose major challenges are low technological, food crises and low level of education (Ahmadi 34). These challenges reduce the ability of the countries to industrialize their economies. Industrialization in less developed countries however should be viewed as a global process aimed at enhancing structural change. In this regard, individual countries should follow their own paths depending on their economic conditions to enter into to the manufacturing sector. Most of the developing countries are the sources of raw materials for manufacturing. They export the raw materials to the developed countries. In return, they import finished goods at a higher price. Therefore, developed countries take advantage of the available resources in less developed countries. Developing countries can however use the raw materials to manufacture end products which will improve the rate of economic development (Ahmadi 37). Stages of economic growth by Rostow Rostow based his argument on the assumption that “modernization” which is currently experienced by many countries was characterized by western countries which initially experienced low growth rate and has now managed to advance to high level of production (Tai & Rostow 72 ). He says that other countries can also improve production by modelling themselves and aspiring to be in a state of capitalism as well as a liberal democracy. Stages of economic growth is the most influential theory in economic development and classifies countries in the following development stages: traditional society; which is characterized by agricultural based economy and have high labour force but low trading levels. Preconditions to take off; where the society is able to begin development by incorporating manufacturing as well as being internationally and nationally involved in trading as opposed to regional trading. Take-off stage; this is a short period in which an economy begins industrialization. At this stage institutions begin being concentrated in the new economic industry. Drive to maturity; this is a stage that tends to take longer in the economic development (Tai & Rostow 73). People’s living standards rise, there is also increase in use of technology. Economy experiences growth and diversification in this stage. Age of high mass consumption; finally, an economy flourishes and it is characterized by high production and consumption. According to this theory therefore, each country has to undergo the stages before being categorized as a developed country. He uses this theory to show industrialization as the bridge for crossing to the category of a developedeconomy. Developing country should therefore industrialize their economies in order to reach the high stage of economic growth. In relation to this theory, the following roles of industrialization can be concluded. Role of industrialization in developing countries Developing countries have been facing economic challenges among them being food insecurity, poor infrastructural development and low level of technology. All these factors affect the economic stability of the countries as well as lowering the living standards in these countries (Eden 45). Industrialization plays an important role in economic growth in the following ways: Economic stability Industrialization has been rated as the best way of ensuring that there is economic stability in a country. Countries that depend on production of raw materials and exporting them cannot achieve a high economic growth. Most of developing countries use agriculture as their major source of raw materials. However, demand of raw materials has so many uncertainties from the agricultural sector such as fluctuating and restricted demand of the raw materials thus reducing economic progress (Tai & Rostow 81). This leads to an unstable economy which most of the developing countries are experiencing. Increase in national income Less developed countries have extremely low national income levels which are contributed by low income generating economic activities in the countries. Industrialization ensures that there is maximum utilization of scarce resources in the economy. It helps to increase the quantity and improve the quality of manufactured goods and therefore such activities largely contribute to the gross nation product (GNP) of a country (Eden 65). Increased standards of living The value of output per worker will be improved in the developing countries through industrialization. Due to higher productivity in the economy, the income of labour is increased. Increasing the income of workers improves their living standards. Establishing and expanding industries also reduces the excessive pressure that comes from the labour force in the agricultural sectors. This is as a result of more job creation in the industrial sector. Therefore, workers will shift from the agricultural sectors to working in the manufacturing industries. Poverty index thus reduces due to increased sources of income in the country (Eden 62). Also, development of industries leads to a wider market for both finished goods and raw materials. Those producing raw materials will have a ready market for the materials and the manufactured goods will as well have a ready market of consumers. Improved balance of payments Through industrialization, a country experiences structural changes in the general foreign trade pattern of the country. It leads to increased export of manufactured goods and therefore a country earns more foreign exchange. On the other hand, manufacturing goods within an economy reduces the need for importing finished goods. This helps a country to conserve foreign exchange. In the long-term therefore, the import substitution and the export orientation effects of industrialization in the country helps to improve the balance of payments. For example, in Pakistan, the exportation of manufactured goods and semi manufactured -goods showed a favourable trend in the improvement of balance of payment in the international trade. Stimulated progress in other economic sectors Development of one industry creates the need of developing more industries. An example of this is where an economy develops a transistor radio industry. This industry will lead to development of a small battery industry. Also construction of a milk processing industry will lead to production of ice cream (Tai & Rostow 102). Expansion of industries translates to an increased level of national income which stimulates economic growth in the country. Increased agricultural production Developing countries have large agricultural lands that require use of technology to maximize production. Industrialization will provide machinery for example tractors aerial spray and bulldozers. The increased use of modern inputs in the agricultural sector will increase the yield of crops. Those in the small scale farming can also increase the sizes of their lands since cultivation is made easier. This eventually increases the income of the farmers and as a result the economic development of a country is boosted. Increased saving and controlled rate of population growth Industrialization leads to increased level of income of workers. This increases their capacity to save whereby this kind of saving stimulates growth of industries and cumulatively, there will be an expansion of the industry. When industrial sector is expanded, more labour will migrate from farm to industrial sector which is situated in the urban centres (Cypher 56). In the cities, there is availability and easy access to health care facilities. People will therefore adopt family planning measures and thus reduce the population growth rate. Increase in income level and reduction in the population increases the per capita income of the country. Balanced and unbalanced growth models Balanced model This model argues that investment must be coordinated in an economy in order to ensure that a country attains real economic growth. In this way a country can be able to achieve industrial expansion simultaneously. However, achieving this kind of development requires government intervention. Governments in the less developed countries should thus consider intervening economic development by ensuring that economic activities are coordinated. The model provides the following methods of government intervention: reducing high taxation, reducing consumption which will then enhance availability of funds for investment. This can either be directly (where government nationalizes industries) or indirectly (where the government provides large subsidies from the state. This way, economic growth effects are then felt in all regions of the country. To avoid dependency also, foreign trade should be controlled so that there is no too much importing in the economy as opposed to exporting. Unbalanced growth The model argues that in the developing countries, there are no sufficient funds that can be used to ensure simultaneous economies expansion. It is therefore important for a country to concentrate on the few growth centres available and to prioritize more on investment than in other sectors. According to this model, few industries which are rapidly growing in a country can stimulate backward linkages in which the suppliers of these industries will have an increased demand as well as increased price levels (Rauch 76). This will lead increased profits. Forward linkages on the other hand are characterized by increase in demand for such services like warehousing, retailing and transport. When such kind of investment is encouraged, less developed economies can be able to pursue what the model refers to as import substitution (Cukor). The imbalance between imports and exports can be controlled by having key growth centres replacing goods that are being imported. This will eventually improve the country’s balance of payments. The theorists of unbalanced growth argue that some government intervention is still necessary for the less developed countries in order for them to achieve significant development within unregulated and free markets by a limited number of industries (Rauch 67). Such government intervention includes fixed exchange rates or subsidies which are only applied to the industries that are defined as economic growth engines. This shows that the government should choose those industries that have a comparative advantage and those that have significant backward and forward linkages with a high potential of import substitution (Cukor). Governments in the developing countries should however put into consideration the effects of imports substitution such decrease in demand of the foreign currency which leads to an increased exchange rate and consequently having difficulties to transact with the export markets. Also there may be an inappropriate selection of the sectors to support. Balanced and unbalanced growth model provides the following advantages of industrialization in developing countries: Advancement in technology: industrialization in developing countries demand for more technology adoption in order to maximize utilization of the available resources. Technology changes are witnessed almost every day in developed economies. This needs to be adopted by less developed economies in order to reduce the gap between the countries. Increased efficiency: industrialization requires high levels of technology which increases efficiency in production. According to balanced and unbalanced model those sectors that have potential chances of increasing import substitution should be given first priority (Todaro & Smith 99). Therefore, less developed economies can adopt this strategy to gradually fit in the developed countries. Growth of infrastructure: high rate of industrial growth in the developing nations lead to expansion of country’s infrastructural facilities (Kaya). Therefore, these countries will be able to capture the raw materials in remote agricultural areas. Foreign direct investment: governments of the less developed countries can also encourage investors from other countries to invest. This increases government earning through taxation as well as making good use of the idle resources. This is due to the problem that is facing the less developed countries of insufficient funds thus leaving some raw materials to lie idle. Foreign direct investment plays a central role in facilitating support for domestic investments in order to achieve high rate of economic development (Kaya). Foreign direct investment also assist the domestic industries by providing technology up gradation and access also enhancing access to the global managerial skills that improve their performance. Harrod-Domar model According to Harrod-Domar model, governments of the developing countries should encourage saving in order to achieve economic growth and development (Hagemann 88). This model argues that encouraging technological advancement by the government also stimulates economic development. Harod-Domar argues that capital output helps to measure the productivity of an industrial investment that is initiated in the developing countries (Boianovsky & Hoover). Role of industrialization according to this model The model suggests that the less developed countries that want to achieve high economic growth should encourage saving and also support use of high levels of technology. This will decrease the capital output ratio in the economy. In the long term, the economy will be able raise enough capital to support industrialization without borrowing capital (Boianovsky and Hoover). Therefore, industrialization plays a key role in generating capital for investment. Conclusion Industrialization plays a vital role in process of economic growth process of the developing countries. Historical facts shows that all the developed economies of the world prevailed by breaking the vicious circle of underdevelopment through initiating industrialization in the economies. Through industrialization, developing countries are able to improve the living standards of citizens as well as raising their national income. Unemployment rate is also reduced by industrialization whereby small and large industries are constructed. This is possible by having people from the agricultural sector who are unemployed and those who are unemployed being absorbed. Division of labour is also enhanced which helps to increase the marginal value of productivity in the economy. It is therefore evident that developing countries need to industrialize in order to break the gap between them and the developed nations. Works Cited Ahmadi, Seyed Ali. The role of international trade and industrialization in economic growth in developing countries the case of Malaysia. New Delhi: Nova Science Publishers, 2007. Print. Boianovsky, Mauro, and Kevin D. Hoover. Robert Solow and the development of growth economics. Durham: Duke University Press, 2009. Print. Cukor, György. The role of import substitution and export development in the industrialization of developing countries. Budapest: Center for Afro-Asian Research of the Hungarian Academy of Sciences, 2011. Print. Cypher, James M., and James L. Dietz. The process of economic development. 2nd ed. London: Routledge, 2004. Print. Eden, Dov. "Industrialization as a Self-Fulfilling Prophecy: The Role of Expectations in Development." International Journal of Psychology 25.3 (2007): 871-886. Print. Hagemann, H.. "Solows 1956 Contribution in the Context of the Harrod-Domar Model." History of Political Economy 41.Supplement 1 (2009): 67-87. Print. Rauch, James E..Balanced and unbalanced growth. Cambridge, MA: National Bureau of Economic Research, 2004. Print. Tai, Hung-Chao, and W. W. Rostow. "The Stages of Economic Growth: A Non-Communist Manifesto.."The Journal of Asian Studies 50.4 (2001): 896. Print. Todaro, Michael P., and Stephen C. Smith. Economic development. 9th ed. Boston: Pearson Addison Wesley, 2006. Print. Yunus Kaya. "Globalization And Industrialization In 64 Developing Countries, 1980–2003." Social Forces 88.3 (2010): 1153-1182. Print. Read More