Should countries industrialise in order to develop? What is the role of capital market development in the process?

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Should countries industrialise in order to develop? What is the role of capital market development in the process?


Industrialisation is one of the main economic development themes. Many historical facts show clearly the close link between economic development and industrialisation.

The world's major advanced industrialised countries completed their industrial revolutions in the nineteenth century. Industrialisation was initially a spontaneous social phenomenon which began in the 1760s in Britain. Large-scale industrial activities, such as machine production, challenged the existing traditional mode of production and a small local market. Meanwhile, the development of capital accumulation and industrialisation of science and technology laid the foundations of industrialisation.

Since the 20th century, and especially after World War II, industrialisation has become a major economic development goal in developing countries. Developing countries learned from the experience of western industrialised countries and adopted a series of economic development strategies so that some developing countries, especially Asian countries, had great economic growth in the 1960s. Industrialisation has not only had a huge impact on the economy but also had a huge impact on urbanisation and social life.

The first part of this paper reviews some basic concepts of industrialisation, then reviews Lewis’ famous Dual Economy Model and its turning point in early research and related arguments on the role of capital markets during industrialisation. In the second section, some empirical and theoretical evidence in favour of implementing industrialisation strategies for development, including some worldwide data, is presented. Chinas’ successful industrialisation experience using Lewis’ dual economy model is contrasted with African’s urbanisation without industrialisation. The results of this indicate that industrialisation is an important process for a country’s development, and capital markets provide fuel for this process.

  1. The role of industrialisation in the country’s economic development:  a conceptual framework

The question of whether countries should industrialise in order to develop is a question about the relationship between industrialisation and the level of development. Recent research suggests that industrial development is one of the most important drivers of structural change which is key in the process of economic development (,  ,.

For developing countries, industrialisation helps to increase the social labour productivity as well as providing various emergent consumables. In addition, they also benefit from capital accumulation, as most developing countries are under the restriction of a lack of capital. Virtually all cases of high, rapid, and sustained economic growth in modern economic development have been associated with industrialisation, particularly growth in manufacturing production (Szirmai 2009).

  1. Definition of industrialisation and its measurement

As this paper is concerned with industrialisation, it is necessary and helpful to explain some related main concepts from the beginning.

In general, industrialisation refers to a decreased proportion of agriculture in the gross domestic product (GDP) and labour force of a country, while the proportion contributed by the manufacturing sector and service sector increase.  For most developing countries, it can be considered as a process of modernisation that involves an economic structural transformation from an agrarian society to an industrial country. In a broader sense, it can be defined as a process of societal transformation, involving economic, political, social and cultural changes (Chandra, R. 2003).

The level of industrialisation can be analyzed by the level of economic development (GDP per capita ),industry structure (share of GDP contributed by the secondary and tertiary sector), industrial rate (value added per worker in secondary and tertiary sectors) and employment structure (share of total employment in the secondary and tertiary sectors).

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1.2  Lewis’ Dual Economy Model and the turning point

The Lewis Model (Lewis, W. A. ,1954) and its extended theory by Rains and Fei (Ranis, G., & Fei, J. C. ,1961) is one of the most famous theoretical frameworks for structural transformation in economic development. It explains the idea of a dual economy that views economic development as the transformation of two sectors, from a “traditional” (agriculture) sector to a “modern” (industry) sector. The modern or industry sector is defined as the capitalist sector "that part of the economy which uses reproducible capital and pays capitalists thereof", while ...

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