The role of manufacturing versus services in economic development

Abstract

Throughout the history of capitalism, practically all countries that have transformed their economies from low to high income have done so through a process of industrialisation. In the field of development economics, the theories recognising the strong relationship between industrialisation and economic development (or the lack of industrialisation and no economic development) that we consider most seminal today started emerging in the 1950s and 1960s, and most importantly include contributions by Hollis Chenery, Alexander Gercschenkron, Albert Hirschman, Nicholas Kaldor, Simon Kuznets, Arthur Lewis, Gunnar Myrdal, Ragnar Nurkse and Raul Prebisch.1 However, not long after the publication of ‘pro-industrialisation’ theories by these scholars, the traditional view of the manufacturing sector as the engine of economic growth and development came to be challenged. It arguably started with Daniel Bell’s 1976 book, The Coming of PostIndustrial Society. In the book, Bell argued that the wealth of future societies would rely less on the production of goods and more on the provision of services and the spread of a ‘knowledge class’ (Bell, 1976).2 It seems as though Bell’s prediction turned out to be correct. The services sector has come to dominate the economic structure of many economies in the latter half of the twentieth century and even more so in the twenty-first century,