INDUSTRIALIZATION AND

STRUCTURAL CHANGE
 What is Industrialization?

INDUSTRIALIZATION is the period of social and economic change

that transforms a human group from an agrarian society into an
industrial society, involving the extensive re-organization of an
economy for the purpose of manufacturing.
A MODEL OF STRUCTURAL CHANGE

The interaction between a traditional agricultural sector and a modern

industrial sector.
Surplus Labor in Rural/Agriculture Sector
Productivity of Labor Increases
Lower Average Wage when the land is flooded with labor
 Backward and Forward Linkages the interaction between the
industrial and rural sectors can be studied using the concept of
backward and forward linkages.
 Exports are critical in explaining productivity gains in the Asian
economies. The Internal competition does not seem to be sufficient to
bring about high rates of productivity increase.
THE ASIAN EXPERIENCE WITH INDUSTRIALIZATION

The growth rate of east Asian economies of Hong Kong, Korea, Taiwan
and Singapore the Asian “Tigers” or Newly industrialized economies is
unprecedented in economic history their per capita incomes increased
by 7% per year.
 Primary commodities accounted for a large share of total
outputs and exports in Asia while manufactured commodities
generally played a supporting role. The structure of
manufacturing was slanted toward labor intensive products
and geared for the domestic market
The Electronic Sector
In structural transformation in the industrial sector of Newly
Industrialized Economies electronics industry had become
the most important export
Patterns of Technological Transfers

The methods varied from economy to economy, some economies are

open to foreign direct investment like Singapore and Hong Kong and
some economies like Korea and Taiwan who were less open and did
not encourage foreign firms to set up operations but they adopted
arrangements where local subsidiaries produced for the foreign
company either OEM or ODM.
COUNTRY EXPERIENCES

Singapore
Singapore followed a model of attracting foreign enterprises and TNCs are
attracted by low labor costs, political stability, good infrastructure and attractive
government provided by government and in early 1990’s there are already more
than 300 TNCs in Singapore. To provide low cost and high quality labor force
economic development board supported technical training, including
engineering and technical schools, because of the infrastructure that put in
place Singapore became a high technology testing ground for hard disk drivers.
Korea
Korea became the leader in chip industry and develop the
capability to produce household appliances and became one of
the leaders in chip production worldwide.
 TNCs are not welcome in Korea they took place under OEM and
moved slowly to ODM. There was a increase in research and
development investment as the industrialization process
continued.
Taiwan
Taiwan used the same approach as Korea in terms of
discouraging TNCs but instead of developing large
conglomerates Taiwan focused in small and medium
sized industries. Eventually some of these small medium
sized firms became larger and they moved toward OBM
or own brand manufacturing.
Malaysia and Thailand
Malaysia’s major part of total exports and manufacturing output are electronics
but despite the rapid progress Malaysia’s research and development remains
weak and the electronic industry is sensitive to global swings in demand.

Philippines and Thailand

The two countries has been on lower level and simple electronics and followed
the model that relying on TNCs for technology transfer and production know
how.
COMPARATIVE ADVANTAGE AND ASIAN INDUSTRIALIZATION

Products that are being exported more intensively are those that are the
country has a comparative advantage next is if the mix of industries in
Japan and United States be taken as benchmark for comparative
advantage.
The role of innovation

Innovation is a creative process of abandoning old ways of doing

things an the adaptation of new methods and process.
Countries beginning industrialization need an entirely different sets of
policies for education and technology transfer compared with those
economies at a more advanced level.
Rural – Urban Migration
 Migration happens when the expected future income in the city
exceeds the expected income in rural areas
 Limited opportunities in rural areas
If the agricultural wages are equal with the average wages of formal
and informal sector.
 Migrants usually move to places where they have friends or relatives
Lastly the social stigma that they need to succeed in life before
returning to their hometown that stigma holds down the migrants in
the urban areas.
Intraregional and International Labor
When an economy experienced labor shortages the shortage could
appear more often in unskilled occupation and there will be in and out
migration.
The cause of labor migration are low domestic earning and
underemployment and also to provide remittance income for their
family.
Immigration in all the high income countries in Asian region has been
controlled and very selective to avoid large flow of illegal workers.
Industrial sector growth was nurtured in many ways through the
indirect effects of government policy if industrial policy were not
followed industrial growth will be slower.
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