Differences in size of primary, secondary and tertiary sectors

Economic Development – Differences in the Size of Primary, Secondary and Tertiary Sectors

1. Introduction

The structure of an economy is usually described in three sectors:

• Primary sector – extraction and production of raw materials (agriculture, forestry, fishing, mining).
• Secondary sector – transformation of raw materials into finished goods (manufacturing, construction).
• Tertiary sector – provision of services (retail, finance, education, health, tourism, ICT, public administration).

Cambridge IGCSE 0455 expects candidates to explain how the relative size of these sectors changes as a country moves from low‑income to high‑income status and why those changes matter for living standards, poverty, population dynamics, saving & investment, and international trade.

2. Why Sector Composition Matters

Understanding the sectoral mix helps to answer several syllabus points:

• Living standards – a larger tertiary share is usually associated with higher GDP per head, higher wages and a higher Human Development Index (HDI) because services such as health and education raise quality of life.
• Poverty – economies dominated by the primary sector tend to have higher absolute and relative poverty rates; low productivity and limited value‑added keep incomes low.
• Population dynamics – the shift towards secondary and tertiary activities drives urbanisation, reduces fertility rates, changes the age‑structure and influences migration patterns.
• Saving & investment – secondary‑ and tertiary‑dominant economies usually have higher gross domestic saving and invest more in physical and human capital.
• International trade & balance of payments – primary‑dominant countries export raw commodities (often volatile), while industrialised economies export manufactured goods and services, affecting the current‑account balance.

3. Typical Patterns of Sector Development

As a country develops, the contribution of each sector to Gross Domestic Product (GDP) and to employment follows a fairly predictable sequence.

4. Illustrative Data (GDP Share)

5. Calculating a Sector’s Share of GDP

Formula

Sector share (%) = (Sector output ÷ Total GDP) × 100

Worked example – Kenya (hypothetical figures)

• Total GDP = US$ 100 billion
• Primary‑sector output = US$ 33 billion
• Sector share = (33 ÷ 100) × 100 = 33 %

Repeat the same steps for the secondary and tertiary sectors.

6. Income, Productivity and Wages

The sectoral mix directly influences how much is produced per worker and the average wage level.

Higher productivity in secondary and especially tertiary activities explains why GDP per head rises as the economy moves up the development ladder.

7. Population Growth, Structure and Dependency Ratios

• Fertility – Service‑oriented, high‑income economies usually have fertility rates below replacement (< 2.1 children per woman) because education, especially of women, and higher living costs delay child‑bearing.
• Urbanisation – Industrial and service jobs concentrate in towns and cities, pulling people from rural areas. Urbanisation rates rise from < 30 % in low‑income economies to > 80 % in many high‑income ones.
• Age‑structure – A larger tertiary sector is linked with an ageing population (higher proportion of 65+). Example: Japan (high‑income) has a dependency ratio of ~ 55 %, whereas Nigeria (low‑income) has a ratio of ~ 85 % because of a large youth cohort.
• Migration – Better‑paid service jobs attract internal migrants and, in some cases, skilled overseas migrants.

8. Saving, Investment and Capital Formation

• Higher incomes in secondary and tertiary sectors increase household saving rates.
• Governments in middle‑ and high‑income economies can raise public saving through taxation of higher wages.
• Saved resources are channelled into:

  • Physical capital – factories, machinery, transport infrastructure.
  • Human capital – schools, universities, vocational training, health.
  • Research & development – especially important for high‑value services and advanced manufacturing.

• Higher investment rates reinforce the shift away from the primary sector.

9. Advantages and Disadvantages of Each Sector

10. Factors Influencing the Size of Each Sector

• Natural‑resource endowment – Abundant arable land or mineral deposits initially boost the primary sector, but over‑reliance can expose the economy to commodity‑price volatility.
• Technology & mechanisation – Increases productivity in agriculture, freeing labour for industry and services.
• Human capital – Education and skills enable movement into manufacturing and high‑value services.
• Infrastructure – Reliable transport, energy and communications are prerequisites for secondary and tertiary growth.
• Government supply‑side policies

  • Investment in roads, ports, power grids.
  • Education, vocational training and health programmes.
  • Tax incentives for manufacturers and service‑sector start‑ups.
  • Deregulation of entry barriers in finance, ICT and professional services.

• Environmental sustainability – Policies such as green manufacturing, renewable‑energy incentives and eco‑tourism help balance growth with resource protection and reduce the ecological footprint of the secondary sector.
• International trade & globalisation – Openness encourages export‑oriented manufacturing and services; protectionism can slow the sectoral shift.

11. Implications for Economic Development

When the tertiary sector becomes dominant, economies typically experience:

1. Higher average incomes and a rise in GDP per head.
2. Improved HDI scores due to better health, education and life‑expectancy outcomes.
3. Greater productivity per worker, allowing higher living standards without a proportional rise in labour input.
4. More stable growth patterns, less exposed to volatile commodity prices.
5. Accelerated urbanisation and a shift in the labour‑market structure towards skilled, service‑based employment.

Conversely, economies that remain heavily primary‑oriented may face:

• Persistently low wages and higher poverty rates.
• Vulnerability to climate change, droughts, floods and global commodity‑price swings.
• Limited fiscal capacity to fund health, education and infrastructure, perpetuating a low‑development trap.
• Lower saving and investment rates, which restrict capital formation.
• Current‑account deficits if export earnings rely mainly on low‑value raw commodities.

12. International Trade and the Balance of Payments

• Primary‑dominant economies export raw commodities → earnings are sensitive to world‑market price fluctuations, often leading to volatile current‑account balances.
• Industrialised economies export manufactured goods and services (finance, tourism, ICT) → earnings are generally more stable and can generate a current‑account surplus.
• Diversification away from primary exports reduces exposure to commodity shocks and supports a healthier balance of payments.

13. Suggested Diagram

14. Summary Checklist for Students

• Identify the three economic sectors and list their main activities.
• Explain why the primary sector is larger in less‑developed economies (resource endowment, low technology, limited infrastructure).
• Describe the typical progression of sector sizes as a country develops (primary → secondary → tertiary).
• Use the sector‑share formula to calculate percentages from given data; practise with the Kenya worked example.
• Discuss at least three factors that cause a shift from primary to secondary and tertiary activities (technology, human capital, infrastructure, supply‑side policies, trade openness).
• Link sectoral change to:

  • Productivity and average wages.
  • Population growth, urbanisation and dependency ratios.
  • Savings, investment and capital formation.
  • Living standards, poverty and HDI.
  • Trade patterns and current‑account balance.

• Evaluate the advantages and disadvantages of a large tertiary sector for long‑term development, including environmental sustainability and regional inequality.