Industrialization industrialized-turned to production of manufactures taking

Industrialization is a key to economic
development of a country. This is true for an underdeveloped economy like India
where the industrialization produces avenues for absorbing the excess manpower
and also ensures availability of mass consumption goods for a vast population.
The process of industrialization helps in harnessing and transforming the raw
resources into useful consumer products and effective means and tools of
production and in the development of infrastructure. The industrial sector
possesses a relatively high marginal propensity to save and invest, contributes
significantly to the achievement of a self sustaining economy with continued
high levels of investment, increase in levels of income and employment (State Industrial Profile of Jammu and Kashmir
2016).

The transition of an economy from primarily agrarian to one based mainly on manufacturing
and industry. Industrialization is generally thought to be a sign of a
growing economy, and is associated with income growth, urbanization, and improvements in health, lifespan, and standard
of living for the populace. Industrialization is considered to be
important for the dynamics and competitiveness of every economy. Its specific
uniqueness makes the sector important as an “engine of growth” (Paskal). Industrialization
has played a key role to drive economic growth and the living standards for
more than three centuries and even continuously playing a same crucial role in
developing countries. Even India continuously is trying to build its
manufacturing sector to raise the living standards and also to increase the
share of manufacturing in its economy from 16 percent to 25 percent by 2022
(James Manyika et al. 2012).

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Virtually
every country that experienced rapid growth of productivity and living
standards over the last 200 years has done so by industrializing. Countries
that have successfully industrialized-turned to production of manufactures
taking advantage of scale economies- are the ones that grew rich, be they
eighteenth-century Britain or twentieth-century Korea and Japan. Yet despite
the evident gains from industrialization and the success of many countries in
achieving it, numerous other countries remain unindustrialized and poor. What
is it that allows some but not other countries to industrialize? And can government
intervention accelerate the process? Of the many causes of lack of growth of
underdeveloped countries, a particularly important and frequently discussed
constraint on industrialization is the small size of the domestic market. Domestic
markets are small and world trade is not free and costless, firms may not be
able to generate enough sales to make adoption of increasing returns
technologies profitable, and hence industrialization is stalled (Kevin 1989).

 

Adam Szirmai (2009) has explained why
industrialization is considered to be the engine of growth. There are powerful
empirical and theoretical arguments in favor of industrialization as the main
engine of growth in economic development. The arguments can be summarized as
follows: 1. there is an empirical correlation between the degree of
industrialization and per capita income in developing countries. 2.
Productivity is higher in the industrial sector than in the agricultural
sector. The transfer of resources from agriculture to manufacturing provides a
structural change bonus. 3. The transfer of resources from manufacturing to
services provides a structural change burden in the form of Baumol’s disease.
As the share of the service sector increases, aggregate per capita growth will
tend to slow down. 4. Compared to agriculture, the manufacturing sector offers
special opportunities for capital accumulation in developing countries. Capital
accumulation can be more easily realized in spatially concentrated
manufacturing than in spatially dispersed agriculture. This is one of the
reasons why the emergence of manufacturing has been so important in growth and
development. Capital intensity is high in mining, manufacturing, utilities and
transport. It is much lower in agriculture and services. Capital accumulation
is one of the aggregate sources of growth. Thus, an increasing share of
manufacturing will contribute to aggregate growth. 5. The manufacturing sector
offers special opportunities for economies of scale, which are less available
in agriculture or services. 6. The manufacturing sector offers special
opportunities for both embodied and disembodied technological progress
(Cornwall, 1977). Technological advance is concentrated in the manufacturing
sector and diffuses from there to other economic sectors such as the service
sector. 7. Linkage and spillover effects are stronger in manufacturing than in
agriculture or mining. Linkage effects refer to the direct backward and forward
linkages between different sectors. Linkage effects create positive externalities
to invest in given sectors and spillover effects refer to the disembodied knowledge
flows between sectors. Spillover effects are a special case of externalities
which to refer to externalities of investment in knowledge and technology.
Linkage and spillover effects are presumed to be stronger within manufacturing
than within other sectors. Linkage and spillover effects between manufacturing
and other sectors such as services or agriculture are also very powerful. 8. As
per capita incomes rise, the share of agricultural expenditures in total
expenditures declines and the share of expenditures on manufactured goods
increase (Engel’s law). Countries specializing in agricultural and primary
production will not profit from expanding world markets for manufacturing
goods. These arguments are frequently mentioned in the literature and are often
considered self-evident, though the recent literature increasing questions
whether manufacturing will continue to be the engine of growth. We examine the
empirical support for these arguments. In doing so, we may find that some of
the arguments need to be qualified. They should also be considered in a
temporal perspective. The applicability of different arguments may well differ
in different historical contexts. The sources of growth change over time (Adam
Szirmai, 2009).

 

 It is argued that productivity is higher in
the manufacturing sector than in the agricultural sector (Fei and Ranis, 1964).
The transfer of resources from agriculture to manufacturing (i.e., industrialization)
provides a structural change bonus.
This is a temporary effect, i.e., it lasts as long as the share of
manufacturing is rising. Similarly, the transfer of resources from
manufacturing to services provides a structural
change burden in the form of Baumol’s disease (Baumol, 1967).Next,
compared to agriculture, the manufacturing sector is assumed to offer special opportunitiesfor capital accumulation.
Capital accumulation can be more easily realized in spatially concentrated
manufacturing than in spatially dispersed agriculture. This is one of the
reasons why the emergence of manufacturing has been so important in growth and
development. Capital intensity is high not only in manufacturing but also in
mining, utilities, construction and transport. It is much lower in agriculture
and services. Capital accumulation is one of the aggregate sources of growth.
Thus, an increasing share of manufacturing will contribute to aggregate growth.
The engine of growth hypothesis implicitly argues that capital intensity in
manufacturing is higher than in other sectors of the economy. However, Szirmai
(2009) has shown that this is not always the case (Adam Szirmai and Bart Verspagen, 2011).