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What Is an Economic Sector?

What Is an Economic Sector?
Dec 04, 2022 (281 Views)

Economic sectors are broad categories of businesses that economists use to track economic growth.

An economic sector is a subset of the economy comprised of businesses that share similar characteristics. Economists can more efficiently analyze economic activity and measure how different types of jobs contribute to the gross domestic product by dividing the economy into sectors.

In the United States, business activities are sometimes divided into the public and private sectors—the public sector includes businesses that are directly controlled by the government, while the private sector includes privately owned businesses. Economists, on the other hand, typically divide the economy into three major sectors: primary, secondary, and tertiary—each classified according to how they relate to raw materials for production. When economists discovered that the three-sector model did not adequately capture modern jobs, they added the quaternary sector, which is sometimes further distilled into the quinary sector.

Investors in financial markets further segment economic sectors. Health care, technology, energy, real estate, and telecommunications are common investment sectors.


Four Sectors of the Economy

A closer look at each of the four economic sectors follows:

1. Primary sector: The primary sector consists of businesses that produce or collect natural resources. Agriculture, mining and quarrying, forestry, and the oil and gas industry are all included.

2. Secondary sector: Companies in the secondary sector transform raw materials into finished goods. This sector includes all processing, construction, and manufacturing jobs, including aerospace manufacturing, automobile production, textile production, shipbuilding, chemical, and engineering industries.

3. Tertiary sector: The tertiary sector, also known as the service sector, includes service providers such as retail sales, transportation, insurance companies, restaurants, tourism, entertainment, legal services, health care, and financial services.

4. Quaternary sector: Education, government decision-making, information technology, research and development, and entertainment are all examples of businesses in the quaternary sector. A fifth sector, known as the quinary sector, is included in some classifications as either a separate category or a subsector of the quaternary sector. However, economists disagree on how to define the quinary service sector. Some argue that it only applies to top-level decision-makers in government, education, science, technology, media, and health care. Domestic activities, non-profits and charities, and human care services, according to some, are included.


Industry vs. Sector

An industry is a specific group of businesses, whereas a sector is a much broader classification of similar business activities. Agriculture and mining, for example, are both in the primary sector but are distinct industries. They are in the same industry because they produce and harvest natural resources. However, the specific activities performed in agriculture and mining differ significantly and, as a result, the two industries are distinct.