Subject                Business Economics 
                  Paper No and Title      6, Industrial Economics 
                  Module No and Title     2,Industrial Revolution and Structural Shifts in GDP 
                  Module Tag             BSE_P6_M2 
                   
                                                                                                   
      BUSINESS                      PAPER NO.: 6,INDUSTRIAL ECONOMICS 
      ECONOMICS                     MODULE NO.: 2, INDUSTRIAL REVOLUTION AND STRUCTURAL 
                                    SHIFTS IN GDP 
                   
           
           
          TABLE OF CONTENTS  
          1. Learning Outcomes 
          2. Introduction 
          3. Industrial Revolution 
             3.1 Historical Back ground 
             3.2 Industrial Revolution – Economic perspective  
                 3.2.1 Technological Inventions 
                 3.2.2 Organizing production 
                 3.2.3 High wage cheap energy  
             3.3 Industrial Revolution – Consequences 
          4. Structural shift in GDP 
             4.1 Industrialization and Structural Change 
              4.2 Structural Shifts in Developing Countries – Consequences 
             andImplications 
          5. Summary
    BUSINESS        PAPER NO.: 6,INDUSTRIAL ECONOMICS 
    ECONOMICS       MODULE NO.: 2, INDUSTRIAL REVOLUTION AND STRUCTURAL 
                    SHIFTS IN GDP 
           
                        
                        
                       1.  Learning Outcomes 
                       After studying this module, you shall be able to -  
                               Know the historical background and the causes that led to ‘Industrial Revolution’ 
                               Understand the economic perspective of the ‘Industrial Revolution’  
                               Have  an  idea  of  the  essential  conditions  necessary  for  such  revolution  and  its 
                                consequences on the society and economy. 
                               Understand the role of industrialization in the structural shift of GDP 
                               Analyzethe consequences of structural shift in GDP in developing and developed world. 
                       2. Introduction 
                                         th
                       Middle of the 18  century saw the beginning of the fundamental change from a typically agrarian 
                       society  to  an  industrialized  one  in  England.  The  period  there  after  was  characterized  by 
                       technological inventions which revolutionized the society and the economy in several ways. This 
                       period of change was known as ‘Industrial Revolution’. The process of change spread to the other 
                       parts of the world as well. Over the last half century similar shift or industrialization has been 
                       observed in many developing countries contributing significantly to the economic development of 
                       the country. This module aims at developing a clear understanding of the conditions that led to 
                       industrial revolution and its consequences. Further it explores the importance of industries in the 
                       structural shift in GDP of an economy.   
                       3. Industrial Revolution 
                       3.1 Historical Back ground 
                       The period – 1760 to 1850 was marked with fundamental changes in England. The country 
                       witnessed  a  gradual,  though  not  abrupt,  transformation  in  agriculture,  textile  and  metal 
                       manufacture, transportation, economic policies and the social structure. The era saw the change of 
                       a typical agrarian and handicraft based economy to an economy which was predominantly based 
                       on industries and machine manufactured products. This process of change has been termed as the 
                       ‘industrial  revolution’.  The  term  ‘industrial  revolution’  was  first  used  to  describe  England’s 
                       economic development from 1760 to 1840 by English economic historian Arnold Toynbee. The 
                                                                                                  th
                       process of change or the ‘revolution’ that began in England in the 18  century soon spread across 
                       Europe and North America. Though the year 1760, represents the beginning of the industrial 
                                                                                                         th
                       revolution, it is  often considered that it actually started way back in 16  century with major 
                       scientific discoveries and ideas, benefits of which was being materialized in post 1760 period.  
                       The  main  features  of  the  industrial  revolution  were  the  technological,  socio-economic,  and 
                       cultural changes. The technological changes were the key to the entire revolution. This included 
                       use of new metals like iron and steel and most importantly the use of coal based steam engines, 
                       internal  combustion  engines  and  electricity.    Invention  of  spinning  jenny  and  power  looms 
        BUSINESS                               PAPER NO.: 6,INDUSTRIAL ECONOMICS 
        ECONOMICS                              MODULE NO.: 2, INDUSTRIAL REVOLUTION AND STRUCTURAL 
                                               SHIFTS IN GDP 
                        
                    
                   resulted in increased production with minimal expenditure of human energy. Concept of factory 
                   system having distinct division of labour and specialized role of the workers came into being. 
                   Development of means of transportation and communication enabled trade and expansion of the 
                   market  for  the  finished  products.  Technological  advancement  tremendously  increased  the 
                   efficient  use  of  natural  resources  and allowed for mass production of the goods. During this 
                   period  industry  grew  4  times  faster.  The  Industrial  Revolution  brought  about  changes  that 
                   completely revolutionized families and lifestyles. Factory system attracted workers to an extent 
                   that they moved out of their rural family economy to urban areas. This led to rapid urbanization 
                   inEngland and cities grew at a tremendous rate. By 1900, Great Britain alone had more cities with 
                   population of 100, 000 or more than the entire Europe had in 1800.  
                   3.2 Industrial Revolution – Economic perspective 
                   Several views have been put forward in the past explaining the ‘industrial revolution’. Most of 
                   these were restricted to identifying the causes. Apart from technologies there were other factors 
                   that favoured industrial revolution in England. This included religious freedom, confidence of no 
                   invasion and trade potential due to long coastlines of this island nation, unification of the states 
                   into single economic unit and presence of huge coal reserves. However there has been, to a great 
                   extent, agreement on the role of political system, property rights and flexibility of legal system as 
                   the cause that led to the industrial revolution. These views attribute the changes which took place 
                   in the late eighteenth century to the Glorious Revolution of 1688 that reinstated the supremacy of 
                   the  parliamentary system, minimal government, and secure property rights. Presumably these 
                   changes in  the  legal  system  created  conducive  environment  for  investment  which  led  to  the 
                   ‘industrial revolution’. But evidences do not support these views as no structural changes could 
                   be detected after 1668 in any of the financial data like interest rates while property rights were as 
                   secure as in other European countries. Table 1 shows the per capita level of industrialization from 
                   1750  –  1913  of  different  countries.  Great  Britain  clearly  outnumbers  rest  of  the  countries 
                   throughout the period. 
                                 Table 1 Per capita levels of industrialization: 1750-1913 
                                               1750    1800   1830    1860    1880    1900   1913 
                           Great Britain        10      16      25     65      87     100     115 
                           Belgium               9      10      14     28      43      56      88 
                           United States         4      9       14     21      38      69     126 
                           France                9      9       12     20      28      39      59 
                           Germany               8      8       9      15      25      52      85 
                           Austria-Hungary       7      7       8      11      15      23      32 
                           Italy                 8      8       8      10      12      17      26 
                           Russia                6      6       7       8      10      15      20 
                           China                 8      6       6       4       4      3       3 
                           India                 7      6       6       3       2      1       2 
                   Note: All entries are based on the index value of 100, equal to per capita industrialization in Great Britain 
                   in 1900. Data for Great Britain includes Ireland with England, Wales and Scotland, collectively known as 
                   United Kingdom (UK). 
                   Source:  Bairoch, P (1982) “International Industrialization Levels from 1750-1980” Journal of European 
                   Economic History. 11: 294. 
       BUSINESS                        PAPER NO.: 6,INDUSTRIAL ECONOMICS 
       ECONOMICS                       MODULE NO.: 2, INDUSTRIAL REVOLUTION AND STRUCTURAL 
                                       SHIFTS IN GDP