Industrialisation induced by expansion of exports

In countries specialising in primary production for export, that is, countries in which productivity was raised in response to the expanding world demand for raw materials, the change in the structure of production particularly the process of industrialisation, is characterised by a number of distinctive features which constitute one of the most interesting aspects of the economic theory of underdevelopment. The rise in productivity and the consequent increase in the purchasing power of the population led to diversification in the pattern of overall demand involving also a more than proportionate rise in the demand for manufactured products. It has been observed that in countries with a per capita income level below 500 US dollars there is a high income-elasticity of demand for manufactured goods, the coefficient value being between 1.3 and 1.5. Hence any rise in the population's purchasing power will mean not only diversification of demand but diversification in a particular direction, requiring a more than proportionate increase in the supply of manufactures. Since specialisation in primary exports (almost invariably only one or two products) concentrates resources in a few lines of production, the evolution of the productive structure will be the inverse of that of the demand schedule.