Assessment.Lewis-Model - ECON251 Economic Development in...

This preview shows page 1 - 3 out of 6 pages.

ECON251: Economic Development in Asia Assessment 2: Essay (Week 4) Title: Explain the Lewis-Fei-Ranis model of economic growth and structural reform. What are the strength and the weaknesses of the Model. Name: Loh Pei Han UOW ID: 4716139 1
According to Hosseini (2012), about 60 years ago, Arthur Lewis issued his seminal, classically-based dualism paper which is Lewis model. Lewis model also called dualistic model. It is a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour proposed by Lewis (1954) for which he was later to be awarded the 1979 Nobel Prize in Economics (Ercolani & Zheng 2010, p3). In the Lewis model, the underdeveloped economy consists of two sectors: a traditional, overpopulated rural subsistence sector characterized by zero marginal labour productivity and a high- productivity modern urban industrial sector into which labour from the subsistence sector is gradually transferred (Todaro & Smith 2011, p115). Hosseini (2012) stated that, this theory is assuming a modern capitalist sector in urban centers of the LDCs and a traditional agricultural sector with an unlimited supply of labour in their rural areas, the policy implications of the model was that with the right combination of economic policies and resources, the disguised unemployed labour of the rural sector will finally be absorbed into the modern capitalist sector, thus, transforming the poor underdeveloped economies into modern dynamic ones. Obviously this transformation did not happen (Hosseini 2012). This model, further refined by economists such as Fei and Ranis (1964), Harris and Todaro (1970), Fields (1975), and others, dominated the literature of development economics and more during the 1950s and the 1960s (Hosseini 2012). The model frequently called the Lewis-Fei-Ranis (LFR) model (Dowling & Valenzuela 2010, p107). According to Ruziev and Perdikis (2015, p66), the seminal paper by Lewis “is widely regarded as the single most influential contribution to the establishment of development economics as an academic discipline”. For Lewis, growth of the industrial sector drives economic growth. The Lewis model argues that development consists of the re-allocation of surplus agricultural workers, whose contributed to the output may have been zero or negligible, to industry where they become productive members of the labour force at a wage equal the institutional wage in agricultural (Ranis & Fei 1961). This process continues until the industrial labour supply curve begins to turn up (Ranis & Fei 1961). Ranis and Fei (1961) formalised Lewis’s theory by combining it with Rostow’s (1956) three “linear-stages-of-growth” theory. They dismantling Lewis’s two-stage economic development into three phases, defined by the marginal productivity of agricultural labour and they assume the economy to be stagnant in its pre-conditioning stage (Ercolani & Zheng 2010, p6).

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture