The Fisher-clark hypothesis

Despite being a primary goal for all countries, economic development is not a natural
occurrence. The reallocation of labor from low to high-productivity sectors as a result of
structural change is one of its key factors. Within the manufacturing sector, both production and
employment proportions shift. As one sector ages and another emerges, economic progress
necessitates a constant transition to a new industry. Increased indirectness of production is
frequently linked to productivity development since many new technologies demand a wide
range of very specialized inputs and services. Poor nations are compelled to adopt relatively
basic production techniques in downstream sectors due to a lack of local support industries.
This results in a narrow market for specialized inputs and precludes the emergence of a network
of support industries. Rich countries, in contrast, are defined by a network of highly specialized
businesses that produce a variety of goods. Fisher and Clark explain the reallocation of labor
during the contemporary economic expansion. They contend that as economies grow, the
workforce's proportion will move, first from the primary to the secondary sector and then to the
tertiary sector. As nations grow in the development of their economies, structural transformation
is a process that takes place. It takes place when nations create vibrant agricultural,
manufacturing, and service sectors and, as a result, see a considerable rise in income levels.
The relative significance of various sectors and, consequently, the sectoral employment shares
shift as nations advance in the process of structural transformation. As a result of technical
advancements, employees are initially liberated from their jobs in the primary sector and move
to the manufacturing sector. Second, job shares in the tertiary sector, which is likewise
developing into a more technical and productive sector, continuously increase with rising per
capita income. Allen Fisher predicted in 1935 that as the economy developed, a sizable service
sector would follow the growth of the main and secondary sectors. Later, in 1940, Colin Clark
expanded on this idea to produce the Fisher-Clark model, often known as the Clark-Fisher
development hypothesis. The Clark-Fisher model resembles both later structural change
models and early linear stage models in various ways. According to this theory, for capitalist
economies to advance economically, fundamental change is required. Their research is still
extremely important for understanding contemporary theories of development and the
significance of a sizable service sector as a sign of growth. According to the Clark-Fisher theory,
as society develops, the service sector will eventually employ the majority of the labor force.
Fisher & Clark, two economists, developed this hypothesis. Every economy, according to their
hypothesis, will go through three stages of production. Agriculture is the first stage. Pertaining to
the processes of mining, logging, fishing, and agriculture for the extraction of raw resources. For
nations with low incomes, this is their primary economic activity. Industrial is the second step.
related to the industrial and construction sectors. Middle-income nations' primary economic
sector is that one. Income will rise as economies grow. As a result, demand will grow more
quickly as income does as well. This will cause industrialization to proceed quickly, which will
cause the farm sector to contract. Service is the third level. related to the provision of services
including banking, foreign travel, education, and health. High-income nations' primary economic
activity is this. It seems to sense that when individuals feel even wealthier, they would now
expect additional services, such as providing their children with high education, showing greater
concern for their health, and traveling abroad. The primary production stage is thought to be the
initial step that a country goes through, followed by the secondary stage, and lastly the tertiary
stage. Due to their low-income elasticity of demand, agricultural items will see an increase in
demand as economies grow and incomes rise, but at a rate that is proportionally slower than
income growth. However, the income elasticity of demand for produced items will be larger. The
demand for these commodities will thus increase proportionately more rapidly as earnings
continue to rise. The secondary sector will thus expand. People will begin to consume more
services as incomes rise as they have a higher income elasticity of demand. As a result, the
tertiary sector will expand and advance. This model predicts that a service sector will develop
for two main causes. First off, demand for services, particularly leisure, tourism, and financial
services, is often very income elastic. As wages rise, so does the demand for services, and
more jobs and economic output are devoted to the provision of services. Second, because it is
more difficult to adapt new technology to many services, productivity in the service industry is
lower than in the industrial sector. This indicates that as time passes, the price of services
increases in comparison to primary and secondary items. Due to poor productivity and high-
income elasticity of demand, the service industry now accounts for a larger share of national
revenue and consumption. In summary, the Clark-Fisher thesis is conceptually appealing and
offers a compelling justification for explaining how labor is distributed across sectors, but it can
only be accepted after careful consideration of its sensitivity to temporal, spatial, and contextual
reliability to shifts in labor force distribution across sectors as well as shifts in the sectors
themselves. This could be deceiving, though. Without having built a secondary industry, some
emerging nations may have a sizable tertiary sector as a result of a sizable tourism business.
According to economists, this could be a little dangerous. A recession in the consuming nations
will have a disproportionately big impact on the export revenues of the developing countries if
the economic base is dominated by an industry like tourism that has a high-income elasticity of
demand. A decrease in income will result in a correspondingly larger decrease in demand for
the service, which will harm the economy. Borrowing and debt could be the sole option for a
developing nation if it lacks a primary or secondary industry.
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