The Lewis-Fei-Ranis model, also known as the dual sector model, is a economic development model proposed by W. Arthur Lewis, Dwight H. Perkins, and John C.H. Fei in the 1960s. It is a model that attempts to explain the process of economic development in developing countries, with a focus on the role of the agricultural and industrial sectors.
According to the model, economic development in developing countries is driven by the transition of labor and capital from the agricultural sector to the industrial sector. In the early stages of economic development, the agricultural sector is the dominant sector and employs the majority of the population. As the economy develops and the industrial sector grows, more and more people are able to find employment in the industrial sector, leading to a decline in the importance of the agricultural sector.
The Lewis-Fei-Ranis model also includes the concept of surplus labor, which refers to the excess labor available in the agricultural sector. This surplus labor is made up of people who are unable to find work in the agricultural sector due to technological advances and increased productivity. As the industrial sector grows, it absorbs this surplus labor, leading to increased economic growth.
One key feature of the Lewis-Fei-Ranis model is the assumption that the agricultural sector is characterized by diminishing returns to labor. This means that as more and more people are employed in the agricultural sector, each additional worker will contribute less to overall production. In contrast, the industrial sector is assumed to have increasing returns to labor, meaning that each additional worker will contribute more to overall production. This helps to explain why the industrial sector is able to absorb surplus labor from the agricultural sector and drive economic growth.
While the Lewis-Fei-Ranis model has been influential in understanding the process of economic development in developing countries, it has also been criticized for its assumptions and oversimplifications. For example, the model does not take into account the role of other sectors, such as the service sector, in economic development. It also does not consider the role of external factors, such as international trade and globalization, in shaping the economic development process.
Despite these criticisms, the Lewis-Fei-Ranis model remains a valuable framework for understanding the role of the agricultural and industrial sectors in economic development. It highlights the importance of structural transformation and the absorption of surplus labor in driving economic growth, and provides a useful starting point for further research and analysis.
The Lewis Ranis Fei model paper
The OS curve shows the total product, which reaches the maximum at point S and does not increase beyond that point because of surplus labour. The only change that accompanies the change in production technique is the one in surplus or profits. In this paper, I will not assess the strengths or weaknesses of the model, but instead, for the sake of simplicity and clarity, assume that the sectors are agricultural and industrial, respectively. To conclude, I have shown the main ideas behind the Lewis-Ranis-Fei model and used the consecutive analysis of the model to explain why it is important to invest in both sectors in order to remain on the balanced growth path and maintain the rate of industrialization. As such, the fluency of language and grammar is impeccable. Ou and Ov represent two ridge lines, and the production 1 and M 2. This is shown by the segment AB on the diagram.
We deal in all academic disciplines since our writers are as diverse. Only at point C will this process come to an end because there is no more disguised unemployment — it only appears at points at which the marginal product of labour is less than the institutional wage. Engineering Engineering is quite a demanding subject. As a result of this, marginal productivity curve does not shift uniformly outward but crosses the original marginal productivity curve from above. Lewis assumes, though implicitly, that no matter how much is produced by the capitalist or modern sector, it will find a market. As a result, the productivity or output per head in the modern sector is much higher than that in agriculture.
Since the economy is in the surplus phase, there will be a certain quantity of labour transferring from agricultural to industrial sector, which explains the increase of the labour in industry from x to y whilst keeping the wage rate constant. To this average productivity is added a margin Lewis fixes this margin at 30% which is required for furnishing an incentive for labourers to transfer themselves from the countryside to the urban industries as well as for meeting the higher cost of urban living. In the graph A right hand side, the oA 1A 2. Let us handle all your python, java, ruby, JavaScript, php , C+ assignments! The client can upload extra material and include additional instructions from the lecturer. You can relax and have peace of mind as our academic writers handle your sociology assignment.
Are your grades inconsistent? As labor is progressively withdrawn from the agricultural sector, there is more income left for the remaining workers to share. Economic Model: It refers to a simplification of a given entity that enables people to understand, make predictions and observe a particular economic behavior. We are here not interested in validity of all the assumptions, explicitly or implicitly, made in this model. Psychology While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. The supply of labour is shown by the curve S L, which is horizontal up to point G because of surplus labour in the agriculture sector. You have unlimited revisions. Not only must the wage compensate for a declining agricultural surplus and a movement of the terms of trade against industry, it must now compensate workers for a higher income foregone in the agricultural sector, and this creates a still sharper upward movement in the industrial wage rate.
You can relax and have peace of mind as our academic writers handle your sociology assignment. Those are just a tip of the iceberg. With MP 2 as the new demand curve for labour and the wage rate remaining constant at OW, amount of labour OL 2 will be employed in the modern sector. It is assumed in the model, though implicitly, that rate of employment creation and therefore of labour transfer from agriculture to the modern urban sector will not be proportional to the rate of capital accumulation in the industrial sector. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.
Lewis’s Model of Development with Unlimited Labour Supply
Statistics We boast of having some of the most experienced statistics experts in the industry. But this is only a temporary phase — a short-lived phenomenon. With the aid of classical assumption that all wages are consumed and all profits saved, Lewis shows that the share of profits and therefore rate of saving and investment will rise continuously in the modern sector and capital will continue to be expanded until all the surplus labour has been absorbed. However, Fei and Ranis took this analysis further by examining changes in the agricultural sector. This will also expand the industrial sector and its employment. On the other hand, agriculture represents the subsistence or traditional sector using non-reproducible land on self-employment basis and producing mainly for self-consumption with inferior techniques of production and containing surplus labour in the form of disguised unemployment.
The area enclosed by the ridge lines defines the region of factor substitutability, or the region where factors can easily be substituted. Do you have responsibilities that may hinder you from turning in your assignment on time? He argues that to be able to apply new technical knowledge, we ought to have new investments. B displays the total physical productivity of labor TPP L curve. All our academic writers have a minimum of two years of academic writing. The figure on the left is a reproduced version of a section of the previous graph, with certain additions to better explain the concept of agricultural surplus. It is, thus, that the capitalists have a profound and direct interest in holding down the productivity of labour in the subsistence sector.
It neglects the Labour-Saving nature of Technological Progress: A serious lacuna of the Lewis model from the viewpoint of employment creation is its neglect of the labour-saving nature of technological progress. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. This can be explained well with the help of graph in this section. Nursing In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. The assumption that the wage rate in agriculture is fixed until the phase of commercialization is reached is strong. However, the expansion process may come to a halt much before the surplus labour has completely been absorbed. The production function levels off just as in Figure 10.
