Economic development generally follows the following pattern. At the initial stage, agriculture or the primary sector (farming, fishing, livestock and forestry) is the largest sector of the economy.
As economic growth gains momentum, the relative share of industry or the secondary sector (manufacturing, mining and construction) in the gross domestic product (GDP) begins to increase at the expense of agriculture. Surplus labour migrating from rural to urban areas and low wages hold the cost of production in check, which contributes to competitiveness and growth in manufacturing.
The industrial development causes a corresponding change in the country’s export mix and the share of manufactured goods in the total export revenue outstrips that of primary commodities. A net food-exporting country may become a net food importer.
Economic development brings with it a higher per capita income, higher standard of living and increased propensity to consume. As a result, wages rise, industrial competitiveness based on low cost of production is dialed down and services or the tertiary sector begins to expand until it overtakes the other two sectors.
Instead of manufacturing most of the goods at home, the economy increases its reliance on imports, because they are cheaper than the home-made goods. At the mature stage of development, de-industrialisation takes place and services become the most vibrant sector of the economy and the largest source of employment.
The economy focuses on manufacturing a narrow range of hi-tech, skills- and capital-intensive products. As a result, the country usually runs a deficit on the merchandise trade account, which is offset by a surplus in trade in services.
Not all economies necessarily follow this pattern. In particular, some countries may suffer premature de-industrialisation, ie, the share of manufacturing in total output may begin to decline without reaching full-scale industrial development accompanied by a high per capita income and a high standard of living.
The services sector grows disproportionately. But because it is not backed by industrial development, it lacks competitiveness and sophistication. As a result, the country faces a deficit in both trade in goods and trade in services. Pakistan is one such example.