Transcript Structural change, Dual sector model

STRUCTURAL CHANGE / DUAL
SECTOR MODEL (LEWIS)
Done by: Tip
Explanation
• The model explains how the developing economy
moves from a traditional agriculture base to a
manufacturing led economy
• Developing economies had dual sector
1) large agricultural sector
- labor was employed very inefficiently, low
productivity, low income and low savings
2) small industrial sector
- high productivity, high income, high savings
Application to economic development
• The industrialists would have to offer higher wages to
the workers to attract them to migrate into the cities.
• 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
• 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.
• Increased in national output, investment and employment  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 has gone too
large that the industrial sector can provide job for, thus lead
to urban poverty rather than rural poverty
• 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
Examples
Dual sector on Cambodia
• Cambodia has surplus labor
• There is a technological changes in the agricultural sector  low
demand for labors
• People are moving to industrial sector  generate more income 
more savings
• Firms  more profits  reinvested
Other places (in capitalists and communist countries)
• Soviet Union – agriculture was squeezed by the state through high
prices for capital investment, low prices for agricultural output, and
collectivization  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.