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ECON251: Economic Development in AsiaAssessment 2: Essay (Week 4) Title: Explain the Lewis-Fei-Ranis model of economic growth andstructural reform. What are the strength and the weaknesses ofthe Model.Name: Loh Pei Han UOW ID: 47161391
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 dualisticmodel. It is a seminal theory of dualistic economic development for over-populated andunder-developed economies with vast amounts of surplus agricultural labour proposed byLewis (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 oftwo sectors: a traditional, overpopulated rural subsistence sector characterized by zeromarginal labour productivity and a high- productivity modern urban industrial sector intowhich 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 urbancenters of the LDCs and a traditional agricultural sector with an unlimited supply of labour intheir rural areas, the policy implications of the model was that with the right combination ofeconomic policies and resources, the disguised unemployed labour of the rural sector willfinally be absorbed into the modern capitalist sector, thus, transforming the poorunderdeveloped economies into modern dynamic ones. Obviously this transformation did nothappen (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 ofdevelopment economics and more during the 1950s and the 1960s (Hosseini 2012). Themodel 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 widelyregarded as the single most influential contribution to the establishment of developmenteconomics as an academic discipline”. For Lewis, growth of the industrial sector driveseconomic growth. The Lewis model argues that development consists of the re-allocation ofsurplus agricultural workers, whose contributed to the output may have been zero ornegligible, to industry where they become productive members of the labour force at a wageequal the institutional wage in agricultural (Ranis & Fei 1961). This process continues untilthe 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 economicdevelopment into three phases, defined by the marginal productivity of agricultural labourand they assume the economy to be stagnant in its pre-conditioning stage (Ercolani & Zheng2010, p6).