The term industrialization means the establishment of secondary industries to process raw materials from primary industries into finished or semi-finished goods. It also means adding value to the raw materials from the extractive industry. Industrialization has been reiterated as a way for developing countries to modernize and generate linkages in their economies.

Why industrialization in developing countries? The need for industrialization in the developing world has been accentuated by three schools of thoughts- the structuralist school, radical school and neoclassical school. The structuralist school espouses the role of industrialization in economic development. They argued that industrialization could be an imperative strategy for raising income levels via general ways including foreign exchange savings or earnings; the generation of externalities and learning effects; growth and continual protection of local infant industries, and increase industrial specialization and dynamic increasing returns. Fulfilling the role of industrialization, the structuralists put less faith in free market and more faith in the government as the driver of dynamic competitiveness and to mount interventions effectively. However, it has been criticized for hindering the long term development of the industry they were made to create, and creating a wide range of short-term costs.

Unlike the structuralist school, the radical school rather placed an emphasis on a number of major obstacles to industrialization in developing economies. This included; the operations of TNCs; appropriation of economic surplus by the center (developed economies); unequal exchange trade; low wages; small entrepreneurs and low levels of technology and others. Thus, these obstacles are both a mixture of external and internal factors, hindering the role of industrialization to be achieved.

While the two aforementioned schools supported the role of government in promoting industrialization in developing economies, the neoclassical takes a different view. Rather the neoclassical puts more faith in the ability of free market to facilitate efficient allocation of resources. For integration into the world economy, the neoclassical school emphasized that developing economies need to liberalized imports, adopt realistic exchange rates, provide incentives for exports, reducing government interference, promote private institutions, promote greater links of manufacturing goods and providing a level playing field for all economic agents.

The adoption and adaptation of structuralist school thoughts in Import Substitution Industrialization (ISI) strategy and neoclassical school thoughts in Export-Oriented Industrialization (EOI) strategy in developing economies have to do with either internal or external economic pressures. In developing countries the practice of ISI preceded EOI. The practice of ISI had both economic and political argument. Economically, it was more oriented towards the growth and protection of local industries from foreign competition, and politically, it was seen as the penchant for self-sufficiency, independence and modernization. Successes achieved under the practice of ISI were eroded by several factors including over-protection of local industries, small market size, excessive dependence on importation of capital goods, low wages and savings, inadequate entrepreneurs, under utilization of labour and natural resources, excessive government interference, foreign penetration, low levels of technology, political instability and others.These factors rendered the practice of ISI as a failure in developing countries. As a result of this, most developing countries switched to the practice of EOI strategies.

In practise, ISI and EOI strategies have been combined to enhance industrialization in developing countries. From combining these strategies, a more comprehensive industrial policy are being developed with increasingly emphasis placed on selective interventions, improving infrastructure development, promoting private-public partnership, creating industrial linkages, improving the quality of good governance, investing in skill creation and technology by supporting institutions and research, providing and disseminating information on industrial financing, promoting macro-economic stability and others.

In sum, a comprehensive understanding of industrialization in developing countries could be appreciated by looking at the interaction of the three schools of thoughts. These schools of thoughts continue to shape industrial policy, and also enhancing a holistic approach towards industrial policy implementation in many developing countries.