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Theories

Fisher Clark's Theory of Structural Change

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Two economists, Fisher and Clark, put forward the idea that an economy would have three stages of production

• Primary production is concerned with the extraction of raw materials through agriculture, mining, fishing, and forestry. Low-income countries are assumed to be predominantly dominated by primary production.
• Secondary production concerned with industrial production through manufacturing and construction. Middle income countries are often dominated by their secondary sector.
• Tertiary production concerned with the provision of services such as education and tourism. In high-income countries the tertiary sector dominates. Indeed having a large tertiary sector is seen as a sign of economic maturity in the development process.

Countries are assumed to first pass through the primary production stage then the secondary stage and finally the tertiary stage. As economies develop and incomes rise then the demand for agricultural goods will increase but due to their low income elasticity of demand at a proportionally lower rate than income. However, the demand for manufactured goods will have a higher income elasticity of demand. So as incomes grow further the demand for these goods will grow at a proportionately higher rate. Hence the secondary industry will grow. As incomes continue to grow then people will start to consume more services as these have an even higher income elasticity of demand. Thus the tertiary sector will then grow and develop.

However, this may be misleading. Some LDCs may have a large tertiary sector due to a large tourist industry without having developed a secondary industry. Economists argue that this could be somewhat risky. If the economic base is dominated by an economic activity such as tourism that has a high income elasticity of demand then a recession in the consuming nations will have a disproportionately large impact on the export earnings. A fall income will bring about a proportionately greater reduction in demand for the service and this will have severe impact on the economy. If it does not have a primary or secondary production to fall back on then borrowing and debt might be the only prospect.

Next theory - The Harrod-Domar Model >>

Related Glossary Items:
Primary Industry
Secondary Industry
Tertiary Industry
Income Elasticity of Demand

Related Theories:
The Harrod-Domar Model
The Lewis Model of Development
Rostow's Model - the Stages of Economic Development
Economic Growth and the Production Possibility Frontier