an economy grows and reaches new stages of development, so the share of
national output from each of the main production sectors changes. The
standard hypothesis is that the long road to economic maturity brings a
switch from manufacturing and construction towards service industries in the
tertiary and quaternary sectors.
this is because the income elasticity of demand for services is higher than
for primary and manufactured products. As average living standards grow, the
pattern of consumer demand tilts away from goods towards services. Increased
government spending on services (such as education and health) adds to this
comparative advantage between countries changes over time, we expect to see
nations switching their resources to industries where they can exploit a new
advantage. In Britain’s case, it is widely held that financial services is
a sector where we hold a significant advantage over other nations.
the rate at which this structural transformation takes place must vary from
country to country. Even within the so-called advanced economies that make up
the OECD¸ there are wide differences in the contributions to output from
the Group of Seven nations (whose data is shown in the table below). Most of
these nations derive over two-thirds of their output from services and the
relative size of the primary sector (which includes agriculture, forestry,
fishing and other extraction industries) has become very small.
Germany and Japan still retain significantly large industrial bases. The
speed of de-industrialisation has been slower in these two countries
contrasted with the USA and the UK.
a global scale, those countries still reliant on primary production as a key
contributor to national income remain well down the world league for living