Economic Sectors & Their Relative Importance Over Time (Edexcel IGCSE Economics)

Primary, Secondary & Tertiary Sectors

• Businesses can operate in different types of economic sectors, which include:

  • The primary sector

  • The secondary sector

  • The tertiary sector

• Classification into these sectors is a simplified way of categorising industries

  • It helps to provide a means of making comparisons between firms in the same sector

  • It does not capture the full complexity and interconnectedness of the business world

  • Many businesses operate across multiple sectors or may not fit neatly into a single category

Diagram: examples of primary, secondary and tertiary activity

Farming in the primary sector, manufacturing in the secondary sector and hairdressing in the service sector
  

• The primary sector is concerned with the extraction of raw materials from land, sea or air, such as farming, mining or fishing

• The secondary sector is concerned with the processing of raw materials, such as oil refinement, and the manufacture of goods such as vehicles

• The tertiary sector is concerned with the provision of a wide range services for consumers and other businesses, such as leisure, banking or hospitality

The chain of production

• The three sectors are linked in the chain of production, which is the series of steps taken to turn raw materials into a finished product that can be marketed and sold
   

Diagram: the chain of production for make-up and computers

Firms can often add value to their products throughout the chain of production

Changes in Sector Importance

• As economies grow and develop, many of the firms within that economy will change their sector of operation (sectoral change)

• Generally speaking, their are successively higher levels of profits to be made in each subsequent sector

  • The reason for this is that each sector adds more value than the previous sector

  • Higher added value equates to higher profits

Less developed economies

• A less developed economy will primarily be focused on the primary sector, with most people employed in agriculture and the production of food

  • There has been a global trend away from employment in primary sector industries over the last two decades

  • Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high

  • This is partly as a result of lower participation rates in education and a lack of infrastructure to support manufacturing or service provision 

Diagram: employment in agriculture since 1991

(Source: WorldBank)
The graph shows a comparison of levels of employment in the primary sector between countries at varying stages of development 

Diagram analysis

• Malawi still retains the highest proportion of employment in the primary sector

• China has seen a significant decrease in primary sector activity

• Germany has had very low primary sector and will likely have been in manufacturing and services well before 1991

Emerging economies

• In emerging economies, improved technology means that less labour is required in the primary sector and more workers are employed in manufacturing

  • The proportion of workers employed in manufacturing has risen over the last few decades

  • Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies

• Emerging economies have experienced growth in the tertiary and quaternary sectors in recent years, with many businesses now focused on the provision of consumer services

Diagram: secondary sector employment since 1991

(Source: WorldBank)

The graph shows a comparison of levels of employment in industry between countries at varying stages of development 

Diagram analysis

• China has the highest proportion of employment in the secondary sector

• Ghana and India have seen significant increases in secondary sector activity

• Brazil and Turkey's secondary sectors have remained relatively stable over the period 1991 to 2019

Developed economies

• The most developed economies have a very high proportion of the workforce employed in the provision of services

  • Developed economies use their wealth to fund advanced education and higher-level skills training, which further supports the growth of these industries

  • Some exceptions, such as Australia (viticulture, or wine production) and Norway (forestry and oil extraction), continue to have significant primary sectors

Diagram: employment in services since 1991

(Source: WorldBank)

The graph shows a comparison of levels of employment in services between countries at varying stages of development

Diagram analysis

• The most developed countries have the highest proportion of their workforces employed in the service industry

• Thailand's service sector employs twice as many workers in 2019 as it did in 1991

• Around half of Ecuador's workforce is now employed in service delivery