What Is the Secondary Sector?
The secondary sector is the part of an economy that transforms raw materials into finished goods. As one of the major economic sectors, it encompasses industries like manufacturing, construction, and utilities (electricity, gas, and water supply). This sector takes the raw materials produced by the primary sector and processes them, adding value added through production and assembly, creating products ready for consumption or for use by other industries.
History and Origin
The concept of the secondary sector gained prominence with the advent of the Industrial Revolution, beginning in Great Britain in the 18th century. This period marked a fundamental shift from agrarian and handicraft economies to those dominated by industry and machine manufacturing. New technologies, such as the steam engine and mechanized textile production, allowed for mass production and the establishment of factories, fundamentally transforming how goods were made and significantly increasing output. This era of industrialization led to unprecedented economic growth and urbanization as populations migrated from rural areas to industrial centers to work in factories.4 The classification of economic activities into sectors, including the secondary sector, is a foundational concept in national accounting and economic statistics, formalized by systems like the International Standard Industrial Classification of All Economic Activities (ISIC) developed by the United Nations.3
Key Takeaways
- The secondary sector transforms raw materials into finished or semi-finished goods.
- Key industries include manufacturing, construction, and utilities.
- It plays a crucial role in economic development, particularly during the transition from agrarian to industrial economies.
- Technological advancements and a skilled labor force are vital for the productivity and growth of the secondary sector.
- The sector's contribution to a nation's Gross Domestic Product (GDP) reflects its industrial capacity and economic structure.
Interpreting the Secondary Sector
The size and health of the secondary sector offer insights into a nation's industrial capacity and stage of economic development. In developing economies, a growing secondary sector often signifies a transition away from a reliance on agriculture, contributing significantly to job creation and urbanization. For developed economies, a robust secondary sector, particularly in high-technology manufacturing, indicates innovation and competitive strength in global markets. Analyzing the secondary sector's contribution to a country's GDP helps economists understand the structure of its economic activity and its reliance on industrial production versus services or primary resource extraction.
Hypothetical Example
Consider a company, "Steelworks Inc.," which operates within the secondary sector. Steelworks Inc. purchases iron ore (a raw material from the primary sector) and coal. Using large furnaces and industrial processes, it transforms these inputs into various steel products, such as beams, sheets, and pipes. These steel products are then sold to construction companies for building infrastructure, to automobile manufacturers for vehicle production, or to appliance makers. In this scenario, Steelworks Inc. exemplifies the secondary sector's function: taking basic inputs and adding substantial value through a complex manufacturing process to create industrial capital goods or components for other finished products.
Practical Applications
The secondary sector's health and evolution are closely monitored by economists, policymakers, and investors. Governments often implement policies aimed at stimulating industrial growth, such as tax incentives for manufacturing businesses, investment in infrastructure like power plants and transportation networks, and educational programs to develop a skilled labor force. For investors, understanding the trends in the secondary sector can inform decisions related to industrial stocks, commodities linked to manufacturing inputs, and even global supply chain resilience. Globally, manufacturing's contribution to GDP varies significantly by country, with some nations like China showing a higher percentage than others, reflecting differing economic structures.2
Limitations and Criticisms
Despite its crucial role in economic development, the secondary sector faces several limitations and criticisms. Historically, rapid industrialization has often been associated with significant environmental degradation, including air and water pollution, deforestation, and the depletion of natural resources.1 While modern manufacturing processes strive for greater sustainability, industrial activities can still generate substantial waste and greenhouse gas emissions, posing challenges to long-term environmental health. Additionally, heavy reliance on the secondary sector can expose an economy to volatility in global commodity prices for raw materials and finished goods. Economic downturns, shifts in consumer demand, or global trade disputes can have a pronounced impact on industrial output and employment. The sector also faces challenges related to automation and the need for continuous technological upgrades, which can displace parts of the traditional labor force.
Secondary Sector vs. Tertiary Sector
The secondary sector and the tertiary sector represent distinct but interconnected parts of the economy. The secondary sector focuses on the physical transformation of raw materials into tangible goods through processes like manufacturing and construction. It is about "making things." In contrast, the tertiary sector, also known as the service sector, provides intangible services rather than producing physical goods. This includes a vast range of activities such as finance, healthcare, education, retail, tourism, and transportation. While the secondary sector produces the products, the tertiary sector often facilitates their distribution, sale, and subsequent use, providing essential support and consumption avenues for the goods created. Many developed economies have seen a significant shift towards the tertiary sector as a primary driver of economic growth, reflecting a post-industrial economic structure.
FAQs
What are examples of industries in the secondary sector?
Industries within the secondary sector include automotive manufacturing, textile production, food processing, chemical production, construction of buildings and infrastructure, and utilities like electricity generation and distribution.
How does the secondary sector contribute to a country's GDP?
The secondary sector contributes to a country's Gross Domestic Product (GDP) by adding value added to raw materials through the production of finished goods. The total value of goods produced, minus the cost of intermediate inputs, represents its contribution to the national economic output.
What is the relationship between the primary, secondary, and tertiary sectors?
These three sectors are interdependent. The primary sector extracts raw materials (e.g., agriculture, mining), which are then used by the secondary sector to produce finished goods. The tertiary sector provides services that support both the primary and secondary sectors and distributes the finished goods to consumers.