As long as people work with their bare hands, their daily production will remain low. This sets a limit to the attainable level of economic welfare in a traditional agriculture-based economy. Higher standards of living can only be realised if production per worker increases. One of the principal ways to raise labour productivity is by providing workers with tools, implements and machines – in other words through capital accumulation.

Capital accumulation is intimately associated with the emergence of an industrial sector. Therefore, economic development is linked to structural change and industrialisation. This chapter focuses on structural change and the relationships between agriculture and industry in the course of economic development. It provides a setting for the discussion of industrialisation in Chapter 9 and agricultural development in Chapter 10.

The point of departure is the fact that in the process of economic development the share of the agricultural sector in production and employment declines and the share of the industrial sector increases. However, this does not mean that the agricultural sector should be neglected. This chapter argues for a positive view of the contributions of the agricultural sector to the wider process of development. The argument consists of two main elements. First, successful industrialisation processes are usually preceded by increases in agricultural productivity. Second, in later stages of development a stagnating agricultural sector can be an obstacle to further development of the entire economy. Therefore, a balanced approach to agriculture and industry is called for.