• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Penpoin.

Better Knowledge. Your Insight Is Sharper

  • Business
    • Business and Strategy
    • Marketing
    • Operation
    • Human Resources
  • Finance
    • Financial Analysis
    • Investment
  • Economics
    • Introduction to Economics
    • Microeconomics
    • Macroeconomics
  • Online Learning
    • Coursera
    • Udacity
    • Udemy
    • Skillshare
    • Magoosh
  • Reading List
    • Self-Help
    • Business and Money
You are here: Home / Business and Strategy / Economic Sector and Its Classification

Economic Sector and Its Classification

Updated on August 11, 2023 by Ahmad Nasrudin

Economic Sector Meaning Classification

Economic sector refers to a collection of various similar economic activities. Similarities vary depending on the classification we use. It could be based on stages in the production chain, source of income or type of product, or based on ownership.

Some examples of classifications commonly used:

  • Classification of three sectors: primary, secondary, and tertiary. This grouping is based on stages in the production chain. Recently, several experts have added quarterly sectors, which were previously included in the tertiary sector category
  • Classification based on ownership: public vs. private
  • International Standard Industrial Classification of All Economic Activities (ISIC) by the United Nations Statistics Division. This classification breaks down three sectors (primary, secondary, and tertiary) into various industry groups. Several countries usually adopt this classification with several adaptations, depending on their economic structure. An example is the North American Industry Classification System (NAIC) in the United States and Canada.
  • Industry Classification Benchmark (ICB) by FTSE
  • Global Industry Classification Standard (GICS) by Standard & Poor’s, Morgan Stanley Capital International
  • Bloomberg Industrial Classification System by Bloomberg

For the last three, they are for listed companies in the capital market. All three facilitate investors in making investment allocation decisions in various sectors.

Economic sector classification

In this article, I will only focus on two classifications, namely classification according to three-sector theory and classification based on ownership.

Primary, secondary and tertiary sectors

The primary sector includes various economic activities related to the extraction of raw materials. Sometimes, we also call this sector the extraction sector. Examples are mining, fisheries, and agriculture.

Traditional economies usually rely on the primary sector. Then, when the economy and technology develops, the economy is headed for industrialization. Various manufactures began to grow.

The secondary sector consists of economic activities that process raw materials into finished and semi-finished goods. This sector generally refers to activities by various manufacturing companies such as food, beverages, toy cars, cars, and clothing. Apart from manufacturing, the construction industry falls into this category.

Manufacturers process raw materials into finished products with higher added value. For example, bauxite can be processed into aluminum and then used for car production.

Initially, the manufacturing industry developed from labor-intensive home business. However, along with the development of technology, they turned to capital-intensive by relying on various sophisticated machines. This transition allows manufacturers to benefit from economies of scale. They can reduce production costs and increase labor productivity.

The tertiary sector includes sectors that provide services. Examples are retail, insurance, transportation, tourism, and banking.

The quaternary sector is involved in technology production, research and development, information services, and education. This sector is vital in improving service quality and innovation in the economy. Without them, economic growth will be slow.

Public vs. private sector

The private sector represents sectors where the private sector has resources. They consist of various household businesses to large companies on an international scale. Profit maximization is their main motivation.

And, in some countries with free-market economies, their role in the economy is significant.

Types of organizations in the private sector generally take the form of:

  • Sole proprietorship
  • Partnership
  • Private limited company

The public sector refers to various economic activities owned by the state. State interference may be as direct as in infrastructure development or indirectly through state-owned companies.

The government, both national and regional, owns and controls the public sector. They aim to provide services to the public and are funded by taxes, except through state-owned companies. Public sector organizations function vital in areas such as education, infrastructure, and health.

The public sector is more dominant in countries that have a command economic system such as China. In this country, the government controls and supervises various economic activities.

Voluntary sector

In addition to the public and private sectors, several classifications add up to the voluntary sector. This sector consists of a variety of social activities carried out by non-governmental organizations. Examples are charities, social enterprises, and voluntary organizations.

  • Sectors Where The Business Operates
  • How Does The Government Play A Role In The Economy?
  • External Sector: Its Effect on the Economy
  • Household Sector: Definition and Role in the Economy
  • Macroeconomic Sector: Types, Roles
  • Government Sector: Meaning, Budget, and Impact on the Economy
  • Tertiary Sector: Examples and Its Contribution to the Economy and Employment
  • Secondary Sector: Know More Its Activities and Contribution to the Economy
  • Quaternary Sector: Examples, Contributions, and How It Grows
  • Primary Sector: Output and Economic Activities Involved

Topic: Economic Sector Category: Business and Strategy

AFFILIATE

25% off the first-month subscription for Chegg Study & Chegg Study pack.

If you click on this link, thank you for contributing to us. We may earn a commission when you buy through our links. Learn more ›

5 NEW ARTICLES

How to Handle and Resolve Stakeholder Conflicts

How to Handle and Resolve Stakeholder Conflicts

Stakeholders have different interests and goals, which are often contradictory. Stakeholder

What are the Benefits of International Trade

What are the Benefits of International Trade?

Increased access to cheaper and more varied goods and services is key benefits of international

Where Do Comparative Advantages Come From

Where Do Comparative Advantages Come From?

The comparative advantage stems from the ability to produce goods and services at low opportunity

What is the Capital Budgeting Process

What is the Capital Budgeting Process?

In simple terms, the capital budgeting process involves generating ideas, making proposals about

Autarky Examples, Pros, and Cons

Autarky: Examples, Pros, and Cons

What's it: Autarky is a system or philosophy in which an economy seeks to

Primary Sidebar

  • "$100M Offers" by Alex Hormozi
    "$100M Offers" by Alex Hormozi
  • "Can't Hurt Me" by David Goggins
    "Can't Hurt Me" by David Goggins
  • "How to Day Trade for a Living" by Andrew Aziz
    "How to Day Trade for a Living" by Andrew Aziz

Footer

5 TRENDING ARTICLES

  • Business Size: Definition, Measurement, Classification
  • Socio-cultural Factors: Examples and How They Impact Business
  • The Role of Business in Society and the Economy
  • List of Examples of Social Enterprises You May Be Familiar
  • Top-Level Management: Examples, Roles and Responsibilities, Skills

EXPLORE MORE

CATEGORIES

Accounting and Finance Books Business and Strategy Financial Analysis Human Resources Investment Macroeconomics Marketing Microeconomics Operation

TOPICS

Aggregate Demand Business Management Demand Financial Analysis Financial Ratio Government Budget International Trade Leadership Macroeconomic Equilibrium Marketing Marketing Management Organizational Structure Profitability Ratio

Copyright © 2023 · About Us  · Privacy Policy and Disclaimer  ·  Affiliate Disclaimer  ·  Terms of Use  ·  Comment Policy  ·  Contact Us