This comes as no surprise, given the overall growth of the world economy. When a society experiences economic development, fundamental alterations occur in the structure of its economy. This structural transformation entails changes in the sectoral distribution of national income. Indeed, the contribution of the agricultural sector to national income declines while the contribution of manufacturing grows a lot, then stabilizes and even contracts. The importance of the services sector continues to rise in the course of economic development.
The industrial classification of the labor force also undergoes changes during the structural transformation process. The role of agriculture as the principal employer diminishes while that of manufacturing first increases, and then tapers off. Services continue to absorb labor. The demand for agricultural workers keeps pace with the demand for the product those workers produce. Since the demand for agricultural goods does not keep up with overall increases in consumption, the demand for agricultural workers falls off. At the same time, the demand for industrial and service sector workers increases along with consumer demand for their products. In addition, labor saving technological change takes place in agriculture and manufacturing, while service sector production tends to be labor intensive, thus absorbing large numbers of workers.
Expansion of the service sector leads to the expansion of the overall economy in part because the sector is composed of industries that lubricate the growth process. Indeed, the development of financial services enables savings and borrowing to occur, leading to investment. The development of telecommunications services enables the spread of information. Transportation services enable the movement of goods and services across a country and between countries. Education and health services build up the stock of human capital. Legal services and business accounting services reduce the costs of transactions.
While the structural transformation (and the rising importance of services) was identified by Simon Kuznets on the basis of the Western development experience, LDCs have more or less followed the same pattern. India, the developing giant, is a case in point. Its phenomenal growth during the 1990s is largely due to the growth of its services sector. According to the World Bank, during this time the services sector grew at an average annual rate of 9 percent, contributing some 60 percent of overall growth. Growth has been most pronounced in information technology and business process outsourcing (BPO) services, followed by telecommunications, fi nancial services, community services, and hotels and restaurants, each of which has grown faster than GDP.
However, not all LDCs have followed this pattern. Exceptions are especially clear in countries whose growth is due to a single commodity (such as coffee or tourism). Such growth does not produce capital-intensive projects usually associated with modernization nor does it entail the proliferation of big factories traditionally at the core of development. Given these exceptions, scholars such as Donald Reid have argued that it is necessary to distinguish between LDCs and More Developed Countries (MDCs), as the manifestations of structural transformations will be different, while Sinclair and Stabler have said that viewing the structural transformation in the usual sense is misguided in the case of countries where tourism is important.
Industrial Revolution and Increasing Demand for Glassware
