Dual+Sector+model+(Lewis)

__** STRUCTURAL CHANGE / DUAL SECTOR MODEL (LEWIS) **__ Done By: Tip



• The model explains how the developing economy moves from a traditional agriculture base to a manufacturing led economy •Developing economies have dual sector 1) large agricultural sector - labor was employed inefficiently, low productivity, low income and low savings 2) small industrial sector - high productivity, high income, high savings
 * Explanation **




 * Application to economic development **

•The model suggested that if there is a surplus in the number of workers, by taking out the workers from the agricultural sector and employing them into the industrial sector would not decrease the food production while increase the industrial output •Rural labors in the developing countries are "untapped resources" • The industrialists would have to offer higher wages to attract the workers to migrate into the cities.



• Those workers who moved away to the industrial sector would earn more income and generate more savings. The amount of food available for the remaining villagers will increase as the same amount food is distributing to fewer people. This might generate a surplus in which it could be sold and generated more incomes. •The profits earned by the industrialists would be reinvested and the demand for labor would increase. •As long as there is still a surplus labor in the agricultural sector, the industrial sectors could attract more labors without having to raise the wage because food supply and the cost of food would not rise •As the wages increase, firms are forced to modernized and be more productive. •Increased scarcity of workers in the rural areas will have the same effect. They will forced to be efficient. •Increased in national output, investment and employment which leads to economics growth




 * Criticism **

• The idea of low productivity in the agricultural sector may not always be true, it’s also depending on the season of the year, during the time for harvest, there may be high needs for labors •Increasing in technology would lead to a lower demand for labor in the industrial sectors.



• Higher income in the industrial sectors doesn’t mean that people will save more, they may choose to spend more on imports •The migration from rural area to urban area may be too large than what the industrial sector can provide jobs for, thus lead to urban poverty rather than rural poverty

wors •May worsen the gap between the rich and the poor, worsen the income distribution since the industrial workers’ earnings outstripping those in the farming sector



// Dual sector on Cambodia // •Cambodia has surplus labor •There is a technological change in the agricultural sector, thus the demand for labors decreased •People moved into industrial sector and generate more income and savings •Firms have more profits and reinvest more
 * Examples **

// Other places (in capitalists and communist countries) // •Soviet Union – agricultural sector was squeezed by the state through high prices for capital investment, low prices for agricultural output, and collectivization, thus people are moving into the cities •South Korea, Taiwan – land reforms

﻿ ** Reference﻿ **
 * Ziogas Constantine. __Economics for the IB Diploma Revision Guide__. Oxford New York copyright: 2008.
 * __Unit 5.4 and 5.5 Growth and Development Strategies.__ []
 * __Dual Sector model.__ copyright: October 28. 2010 []

==Links for more information: [|Lewis's Dual Sector Model of Development: The theory of trickle down], [|Theories Of Development 3: Lewis Dual Sector Model], [|11 Stages Of Growth], [|Models for economic growth – IB Economics], [|IB Economics/Development Economics/Growth and Development Strategies]==