Industrial Structure and Policy in Less Developed Countries

Colin Kirkpatrick, N. Lee, Fred Nixson

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781136877803
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

First published in 1984, this textbook analyses, at both aggregate and micro economic levels, the contemporary industrial conditions in Third World countries and relates this to the process of economic growth and structural transformation.

Drawing upon both industrial and development economics, the authors offer a comprehensive and integrated treatment of the different levels of industrial analysis in less developed countries, alongside a wealth of comparative data on industrial structure, business concentration and behaviour, and industrial policies in a cross-section of countries in Africa, Asia, the Far East and Latin America.

1 Introduction

1.1 INDUSTRY AND DEVELOPMENT

For the great majority of LDCs¹, industrialisation remains a fundamental objective of economic development. In such countries industrial development is considered necessary to achieve high rates of economic growth, to provide for the basic needs of the population, to create more employment opportunities, to lead to an increasingly diversified economy and to give rise to desirable social, psychological and institutional changes (UNIDO, 1979a, chs I and IV). Consequently, development economists have shown considerable interest in analysing, at the more aggregate level, the relationship between industrialisation and the development process in LDCs. Far less attention has been paid to the analysis of industrial structure, behaviour and policy in LDCs at the microeconomic level. Although there are a number of well-established textbooks in industrial economics that focus on the microeconomic level of industrial activity and policy, without exception they confine their analysis to developed economies, notably the United States and the United Kingdom.

The purpose of this text is to analyse, at both aggregate and microeconomic levels, the industrial conditions prevailing within a range of LDCs and to relate these to the process of development taking place within them. It draws upon the literature from two previously separate branches of economics – industrial economics and development economics. Drawing upon these two distinct sources of economic analysis has important implications for the structure, content and methodological approach adopted in the book.

First, industrial economics has traditionally been more concerned with analysis at the level of the individual establishment, firm, market and industry, whereas development economics has focused primarily upon industry’s sectoral relationships within the development process as a whole. In bringing these two elements together it is possible to achieve a more comprehensive and more fully integrated treatment of the different levels of industrial analysis in less developed economies.

Second, industrial economics has typically focused upon issues of central concern to mature industrial economies serving large domestic markets: the structure of those markets, their competitiveness, the transmission of new knowledge into new products and processes, the levels of technical and allocative efficiency that are achieved. Development economics has focused upon a different range of industrial issues: structural change in industrial production and foreign trade during the development process, the role of foreign-owned corporations in the industrialisation and development process, the appropriateness of the technology transferred from DCs to LDCs, the adoption of broad industrial strategies and policies. Again, in drawing upon both branches of the subject, a more balanced treatment of industrial issues relevant to LDCs is possible.

Third, both industrial economics and development economics have their own methodological traditions but in neither case is one single methodological approach dominant. In industrial economics, the neoclassical tradition exists alongside a more inductive form of analysis based upon the use of case studies and institutionally based forms of analysis, as well as the more formal methods of statistical analysis used in hypothesis testing (Devine et al., 1979, ch. 1). Similarly, in development economics, neoclassical analysis exists alongside Marxist and more inductive and institutional forms of analysis (Todaro, 1981, chs 1 and 3). By drawing upon these different approaches a better understanding can often be obtained through uncovering implicit assumptions in the analysis, introducing new kinds of evidence, raising wider issues or offering new interpretations of the existing evidence.

1.2 CLASSIFICATION OF INDUSTRIAL ACTIVITIES

An industrial classification system is a device for grouping similar production activities into industries and is therefore basic to the study of the industrial structure of any economy. However, there are a number of different criteria that could be used to determine ‘similarity’; for example, activities might be grouped according to the main material that they use, the type of product (or service) that they make, or the production process that they use. In order to promote uniformity and comparability in official industrial statistics relating to their own economy, many countries have developed their own standard industrial classification (SIC). In turn, to assist in comparisons of industrial structure between different economies, the United Nations has prepared an International Standard Industrial Classification (ISIC). This is the main industrial classification used in this text. The ISIC groups production activities at four levels of aggregation. In descending order of size, these are: major divisions (identified by a one-digit code), divisions (two-digit code), major groups (three-digit code) and groups (four-digit code) (United Nations, 1971).

At the highest level of aggregation, production activities are grouped into nine major divisions as follows:

1 Agriculture, hunting, forestry and fishing

2 Mining and quarrying

3 Manufacturing

4 Electricity, gas and water

5 Construction

6 Wholesale and retail trade and restaurants and hotels

7 Transport, storage and communications

8 Financing, insurance, real estate and business services

9 Community, social and personal services

Each major division is divided into a number of two-digit divisions; for example, major division 3 (Manufacturing) is divided into:

31 Food, beverages and tobacco

32 Textile, wearing apparel and leather industries

33 Wood and wood products, including furniture

34 Paper and paper products, printing and publishing

35 Chemicals and chemical, petroleum, coal, rubber and plastic products

36 Non-metallic mineral products, except products of petroleum and coal

37 Basic metal industries

38 Fabricated metal products, machinery and equipment

39 Other manufacturing industries

In turn, each division is divided into a number of three-digit major groups and most major groups are further subdivided into four-digit groups. For example, division 31 is divided into major groups 311–12 food manufacturing, 313 beverage industries and 314 tobacco manufacturing. Similarly, major group 313 is divided into groups 3131 distilling of spirits, 3132 wine industries, 3133 malt liquors and malt, and 3134 soft drinks and carbonated waters industries.

The term industry is used in a variety of different ways in the economic literature and it is necessary to clarify its meaning to avoid subsequent confusion. As in this text, ‘industry’ normally refers to any of the major divisions listed above or to any of the divisions, major groups or groups that are subdivisions of these (the main exceptions arise from the somewhat different classification of international trade flows, which is described below). in most cases it should be clear from the context which level and type of industrial aggregation is being used. However, it should be noted that some writers restrict the term ‘industry’ to groupings of particular types of activities, although there is no general agreement on the types of activities to which the term should be limited: some restrict it to activities contained within major divisions 2–4, some also include major division 5 and/or exclude major division 2, others limit it to activities within major division 3 alone. In this text, the term ‘industry’ is not restricted to particular types of economic activity but industries are, for certain forms of analysis, grouped into sectors: for example, the agricultural sector (major division 1), the industrial sector (major divisions 2–5) and the services sector (major divisions 6–9).

In assigning economic activities to particular industries, the basic statistical unit that is most commonly used is the establishment, although in a minority of countries other units are used. The establishment may be defined as a workplace under one ownership at a single physical location. It is allocated to a particular industry according to the nature of the principal economic activity that is carried on there. Therefore, the output, employment, etc., of an industry (whatever its level of aggregation) are obtained by adding together the output, employment, etc., levels of all of those establishments whose principal activity falls within the boundaries of the industry in question. A firm (sometimes referred to as an enterprise) is a unit of ownership and control of economic activities. A firm may own two or more establishments, which will ‘belong’ to different industries if the principal activities carried on within them are sufficiently dissimilar. For this reason the output, employment, etc., levels of industries cannot be reliably obtained by adding together output, etc., measures for individual firms. In common usage, the terms ‘industry’, ‘firm’ and ‘establishment’ are frequently interchangeable but, because of the confusion that this can cause, this should be avoided wherever possible.

International trade flows are expressed in terms of gross value and are classified using the Standard International Trade Classification (SITC) system. The SITC groups merchandise exports and imports at four levels of aggregation. The major sections (identified by one-digit code) are:

0 Food and live animals chiefly for food

1 Beverages and tobacco

2 Crude materials, inedible, except fuels

3 Mineral fuels, lubricants and related materials

4 Animal and vegetable oils, fats and waxes

5 Chemicals and related products (not elsewhere specified)

6 Manufactured goods classified chiefly by material

7 Machinery and transport equipment

8 Miscellaneous manufactured articles

9 Commodities and transactions not classified elsewhere

Each section is disaggregated into divisions (identified by a two-digit code), which are in turn disaggregated into three- and four-digit codes.

Since the SITC and ISIC systems are not identical, trade and industrial data cannot be directly compared with each other. For comparative purposes it is common practice to select a definition of trade in manufactures that roughly matches the range of activities commonly identified with manufacturing in the ISIC framework. For example, manufactures is normally defined as SITC sections 5–8 (in some cases SITC 68, non-ferrous metals, is excluded).

1.3 AVAILABILITY AND RELIABILITY OF DATA

Although most LDCs have established systems for the collection and publication of industrial statistics, few of these are fully developed yet. LDCs also often suffer from insufficient skilled manpower and financial resources for data collection and processing. It is therefore important to be aware of the possible limitations in the data currently available and to take these into consideration when analysing the data and drawing conclusions (Fessey, 1981). These limitations are briefly outlined below.

A prerequisite for the collection of industrial data in any country is a list of business enterprises and establishments, which ideally should be as comprehensive and up-to-date as possible. However, because the preparation of such lists is time consuming and expensive, they may be updated only at long intervals. This may mean that enterprises and establishments created since the last listing are ignored, unless other means of identification are available (e.g. tax records).

A further difficulty arises where production is carried on within large numbers of very small establishments or domestic residences. Because of the practical difficulties involved, most LDCs limit their listings, and the surveys based upon these, to establishments above a certain threshold size, ranging usually (according to country) from five to twenty employees. The listing therefore provides very inadequate coverage, if any, of what is referred to as the ‘informal’, ‘traditional’ or ‘non-modern’ sector of economic activities. Estimates of the size of this sector have to draw upon such other less satisfactory sources as might be available and may be subject to a wide margin of error.

On the basis of the businesses list available, estimates of output, employment, investment, etc., are sought at intervals using postal questionnaires and interviews. Again, because of the time involved, the intervals may be considerable and for the intervening period estimates may be prepared on the basis of extrapolations from the last survey and such other industrial information as may be available. Where surveys are carried out, errors may occur through both inaccurate reporting and non-response.

Finally, once the raw data have been collected they have to be processed and, particularly where there are insufficient skilled personnel for the task, errors may occur through assigning establishments to the wr...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Tables
• Figures
• List of Abbreviations
• Acknowledgements
• Preface
• 1 Introduction
• 2 Industrial Structure, International Trade and Development
• 3 Business Concentration in LDCs
• 4 Business Behaviour in the Private Sector
• 5 Business Behaviour in the Public Sector
• 6 Industrial Policies and Development
• Bibliography
• Author index
• Subject index