Definition of Primary products: Raw materials and resources used in the productive process. Examples include metals, agricultural products and minerals.
primary-sector
Advantages of Producing Primary Products
For many developing economies, their main comparative advantage will be in producing primary products. The industry becomes an important source of economic growth, employment, tax revenue and export earnings. Without primary products, countries would be worse off.
Developing economies have a large and elastic supply of labour willing and able to work in these industries.
Doesn’t require costly investment and borrowing to finance investment. The industries can be managed by local workers. Developing economies which have tried to switch to manufacturing have not always been successful because they lack the relative infrastructure, education and human capital
Disadvantages of Relying on Primary Products
inelastic-demand-volatile-prices
Prices are often volatile due to inelastic demand. e.g if there is a ‘good harvest’, supply will increase and there will be a fall in the price of primary products. However, because demand is inelastic, this would lead to a fall in revenue.
coffee-supply-price-growers
The volatile price of coffee – can make planning difficult.
Supply can also be volatile due to weather and disease. For agricultural crops, there is always a risk of crop failure, which could cause economic hardship in one particular year.
Limited resources. One day developing economies may run out of its finite primary products, e.g. precious metals could become scarce. Without diversification, this would leave the economy with a void.
