William Arthur Lewis's Model Of The Dual Sector Model

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The structural change model or the dual sector model is a developmental economic model found by inventor sir William Arthur Lewis. It is also commonly known as the Lewis model. Initially the model as given by Lewis, was explained in his article entitled “economic Development with Unlimited supplies of labor”. His model explained how the transition from rural and subsistence agricultural economy to urban industrial modern economies should take place. In his model of dual structure, the disguised unemployment or the Marginal Physical productivity of labor should be negative or equal to zero(MPPL=0, negative), implicating that there should be disguised unemployment in the economy. Therefore, the economy should be able to have unlimited supplies…show more content…
All wages are consumed and all the profits is saved and invested 3. No constraint on acquiring raw materials and other resources for industrialization. 4. Industrial wages all 30% higher than subsistence wages. The model assumes that a developing economy has a surplus of unproductive labor in the agriculture sector. These workers are moved to the growing manufacturing sector where the wages are 30% higher. It is also assumed that the wage in the manufacturing sector is fixed. The entrepreneurs in the manufacturing sector will make a profit because they don’t have to give a large portion of profit to pay the wages of the labor. The model then assumes that these profits will be reinvested in the business in the form of more fixed capital. Firm’s productive capacity is thus increased and entrepreneurs will demand a greater amount of labor. More workers will be employed from the surplus found in the agriculture sector. The process continues until all surplus labor from the agriculture sector has been employed. The manufacturing sector will have grown and the economy moved from a traditional agricultural economy to industrial modern sector. The model faces few criticisms regarding its basic assumptions as…show more content…
Agriculture consists largely of subsistence farming and animal husbandry. The country in the last two decades have moved on to become a more industrialized economy thorough large scale industrialization. The relative level of backwardness also stands true in lieu with the developmental decisions the country has chosen. The investing in heavy capital goods industries like hydro power projects and lesser manufacturing of consumer goods is also one of the features in such under developed countries. The developmental process of Bhutan is largely a capital goods oriented. The country in the last 2 decades has significantly improved its economic stand and has gained a significant growth in the GDP of the country ($175m in 1985- $1280m in 2008) (source: International Monetary Fund). The country’s economy, however, requires skilled labor which does not go hand in hand with the Assumptions of the Lewis model which requires disguised unemployment. Also being a capital intensive economy, the country does not require much labor in the hydroelectric

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