primary, secondary and tertiary sectors

1.2 Economic Sectors – Classification of Businesses

Learning objective (AO1)

Identify and describe the three main economic sectors – primary, secondary and tertiary – and give examples of activities in each sector. Explain why businesses are classified, how the importance of the sectors differs between developing and developed economies, and how the size of each sector can be measured.

Why we classify businesses into sectors (AO1)

Classification provides a common framework that allows:

• Comparison of businesses that operate at similar points in the value‑chain (e.g. a farm supplying raw material to a food‑processing factory).
• Government decision‑making on resource allocation, taxation, regulation and economic development policy.
• Investors and analysts to assess sector‑specific risks, opportunities and performance trends.
• Students to understand how economies develop and change over time.

1. Primary sector

Definition: Extraction or collection of natural resources directly from the earth.

• Agriculture – crops, livestock, horticulture
• Forestry – timber, pulp
• Fishing – wild catch, aquaculture
• Mining – coal, metal ores, oil and gas extraction
• Quarrying – stone, sand, gravel

2. Secondary sector

Definition: Transformation of raw materials from the primary sector into finished or semi‑finished goods.

• Manufacturing – cars, clothing, electronics
• Construction – residential, commercial and infrastructure projects
• Processing – food canning, metal refining, textile production
• Energy production – electricity generation from coal, gas, nuclear, renewable sources

3. Tertiary sector

Definition: Provision of services rather than tangible goods. The sector supports the primary and secondary sectors and meets consumer needs.

• Retail and wholesale – supermarkets, online stores
• Banking and finance – loans, insurance, investment services
• Transportation and logistics – shipping, airlines, road haulage
• Education and health – schools, universities, hospitals, clinics
• Tourism and hospitality – hotels, travel agencies, restaurants
• Public services – government administration, policing, waste management

Reasons for the changing importance of business classification (AO2)

Three inter‑related processes explain why the relative size of the three sectors differs between developing and developed economies:

1. Industrialisation – As a country moves from a low‑income to a middle‑income status, investment shifts from primary activities to the secondary sector. Manufacturing creates higher‑value output and more employment than raw‑material extraction.
2. De‑industrialisation – In many high‑income economies, manufacturing becomes relatively less important because production is outsourced to lower‑cost countries and because automation reduces the labour needed in factories.
3. Growth of technology‑driven services – Advances in information and communication technology (ICT) generate new service industries (e.g. software, e‑commerce, financial technology). These services dominate modern economies and provide the fastest employment growth.

Changing importance of the sectors (AO2)

• Low‑income (developing) economies: primary sector can contribute > 30 % of GDP and employ a large share of the workforce.
• During industrialisation: secondary sector grows rapidly, often becoming the dominant contributor to GDP (≈ 20–30 %).
• High‑income (developed) economies: tertiary sector dominates, providing 60–80 % of GDP and the fastest employment growth.
• De‑industrialisation in many advanced economies sees a decline in manufacturing while service‑based activities expand.

Comparison of the three sectors (AO1)

Private vs. public sector businesses (AO1)

In a mixed economy businesses can also be classified by ownership:

• Private sector – Owned by individuals or companies; profit‑oriented. Examples: a privately‑owned dairy farm, a multinational car manufacturer.
• Public sector – Owned and operated by the government; provides services that may not be profitable but are socially essential. Examples: a state‑run water utility, a national railway.

Measuring sector size / importance (AO2)

Data‑response practice (AO2 & AO3)

The table below shows the percentage of total employment in three fictional countries.

Task (AO2/AO3): Identify the sector with the fastest employment growth when moving from Country A to Country C and explain two reasons for this trend, using knowledge of industrialisation, de‑industrialisation and the rise of technology‑driven services.