In macroeconomics, an industry is a branch of an economy that produces a closely related set of raw materials, goods, or services. For example, one might refer to the wood industry or the insurance industry.
For a single group or company, its dominant source of revenue is typically used to classify it within a specific industry. However, a single business need not belong to one industry, such as when a large business is diversified across separate industries.
Because industries are tied to specific products, processes, and consumer markets, they can evolve over time. One distinct industry may become limited to a tiny niche market and mostly absorbed into another industry using new techniques. At the same time, entirely new industries may branch off from older ones once a significant market becomes apparent.
Industry classification is valuable for economic analysis because it leads to largely distinct categories with simple relationships. However, more complex cases, such as otherwise different processes yielding similar products, require an element of standardization and prevent any one schema from fitting all possible uses.
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