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The Dual Sector model, or the Lewis model, is a model in developmental economics that explains the growth of a developing economy in terms of a labour transition between two sectors, the subsistence or traditional agricultural sector and the capitalist or modern industrial sector. [1]

History

[edit]

Initially enumerated in an article entitled "Economic Development with Unlimited Supplies of Labor" written in 1954 by Sir Arthur Lewis, the model itself was named in Lewis's honor. First published in The Manchester School in May 1954, the article and the subsequent model were instrumental in laying the foundation for the field of Developmental economics. The article itself has been characterized by some as the most influential contribution to the establishment of the discipline.

Theory

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The "Dual Sector Model" is a theory of development in which surplus labor from traditional agricultural sector is transferred to the modern industrial sector whose growth over time absorbs the surplus labor, promotes industrialization and stimulates sustained development.

In the model, the traditional agricultural sector is typically characterized by low wages, an abundance of labour, and low productivity through a labour intensive production process. In contrast, the modern manufacturing sector is defined by higher wage rates than the agricultural sector, higher marginal productivity, and a demand for more workers initially. Also, the manufacturing sector is assumed to use a production process that is capital intensive, so investment and capital formation in the manufacturing sector are possible over time as capitalists' profits are reinvested in the capital stock. Improvement in the marginal productivity of labour in the agricultural sector is assumed to be a low priority as the hypothetical developing nation's investment is going towards the physical capital stock in the manufacturing sector.

Since the agricultural sector has a limited amount of land to cultivate, the marginal product of an additional farmer is assumed to be zero as the law of diminishing marginal returns has run its course due to the fixed input, land. As a result, the agricultural sector has a quantity of farm workers that are not contributing to agricultural output since their marginal productivities are zero. This group of farmers that is not producing any output is termed surplus labour since this cohort could be moved to another sector with no effect on agricultural output. (The term surplus labour here is not being used in a Marxist sense and only refers to the unproductive workers in the agricultural sector.) Real wages are paid according to:

where is total product in the agricultural industry, is the quantity of labor in the agricultural industry and is real wage in the agricultural industry.[2] Therefore, due to the wage differential between the agricultural and manufacturing sectors, workers will tend to transition from the agricultural to the manufacturing sector over time to reap the reward of higher wages.

If a quantity of workers moves from the agricultural to the manufacturing sector equal to the quantity of surplus labour in the agricultural sector, regardless of who actually transfers, general welfare and productivity will improve. Total agricultural product will remain unchanged while total industrial product increases due to the addition of labour, but the additional labour also drives down marginal productivity and wages in the manufacturing sector. Over time as this transition continues to take place and investment results in increases in the capital stock, the marginal productivity of workers in the manufacturing will be driven up by capital formation and driven down by additional workers entering the manufacturing sector. Eventually, the wage rates of the agricultural and manufacturing sectors will equalise as workers leave the agriculture sector for the manufacturing sector, increasing marginal productivity and wages in agriculture whilst driving down productivity and wages in manufacturing.

The end result of this transition process is that the agricultural wage equals the manufacturing wage, the agricultural marginal product of labour equals the manufacturing marginal product of labour, and no further manufacturing sector enlargement takes place as workers no longer have a monetary incentive to transition.

Turning point

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The Lewisian "turning point" is the point where the surplus labour pool is depleted. The economy then begins to resemble a developed economy.

Criticism

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The theory is complicated by the fact that surplus labour is both generated by the introduction of new productivity enhancing technologies in the agricultural sector and the intensification of work.

The wage differential between industry and agriculture needs to be sufficient to incentivise movement between the sectors and, whereas the model assumes any differential will result in a transfer.

The model assumes rationality, perfect information and unlimited capital formation in industry. These do not exist in practical situations and so the full extent of the model is rarely realised. However, the model does provide a good general theory on labour transitioning in developing economies.

Practical Application

[edit]

This model has been employed quite successfully in Singapore and helps explain the rapid growth in countries like the UK during the industrial revolution.

References

[edit]
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Dual-sector model

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The dual-sector model, also known as the Lewis model, formally introduced by economist in his 1954 paper "Economic Development with Unlimited Supplies of Labour," is a foundational framework in that describes structural transformation in low-income economies characterized by abundant labor supplies. It posits a divided into a traditional subsistence sector—typically , where marginal labor productivity is low or zero due to surplus labor—and a modern capitalist sector, often industry, where productivity is higher and driven by and technological progress. The model explains as arising from the reallocation of underemployed workers from the traditional to the modern sector at a constant real wage tied to subsistence levels, allowing profits in the modern sector to be reinvested for expansion without immediate inflationary pressures on wages. Central to the model's assumptions is the existence of an "unlimited supply of labor" in developing economies, where outpaces capital and natural resources, resulting in disguised in the traditional sector. Lewis argued that this surplus labor enables the modern sector to expand rapidly by absorbing workers without bidding up s, fostering a virtuous cycle of industrialization and output growth until the labor surplus is depleted—a turning point after which s begin to rise in tandem with gains. The framework highlights two primary determination mechanisms: one where modern sector s are institutionally linked to agricultural subsistence levels (mechanism I), and another where they are set independently but still draw from the labor pool (mechanism II), both sustaining the dualistic structure during early development stages. The dual-sector model has profoundly influenced development policy, for which Lewis received the in Economic Sciences in 1979, emphasizing the role of industrial investment and improvements to facilitate labor transitions and reduce dualism over time. Extensions and critiques, such as those by Fei and Ranis, refine its dynamics by incorporating agricultural surplus generation as a prerequisite for non-agricultural expansion and addressing limitations like food supply constraints or endogenous effects that can perpetuate sectoral divides. Despite empirical challenges in fully observing zero marginal or seamless labor mobility in real economies, the model remains a cornerstone for analyzing persistent inequalities between rural and urban sectors in developing nations.

Historical Development

Origins and Key Contributors

The dual-sector model originated with the seminal work of British economist , who formalized it in his 1954 paper "Economic Development with Unlimited Supplies of Labour," published in The Manchester School. In this foundational contribution, Lewis outlined a framework for understanding in labor-abundant developing economies, emphasizing the transfer of surplus labor from a traditional subsistence sector to a modern capitalist sector. Lewis, born in 1915 in , (then part of the ), drew from his experiences in colonial and post-colonial settings to address the challenges of . He focused on the persistence of labor surpluses in agrarian economies, arguing that such conditions allowed for industrialization without immediate wage pressures. For his pioneering research in , including this model, Lewis shared the Nobel Memorial Prize in Economic Sciences in 1979 with Theodore W. Schultz. The model emerged within the broader structuralist tradition of in the , which sought to explain persistent through rigid sectoral divides rather than market failures alone. It was influenced by observations of dualistic structures in colonial economies, where export-oriented modern sectors coexisted with low-productivity traditional agriculture. This intellectual framework gained traction amid the postwar wave, as newly independent nations grappled with economic transformation. Key refinements to Lewis's model were provided by economists John C. H. Fei and Gustav Ranis in the early 1960s, who built upon its core ideas in their 1961 paper "A Theory of Economic Development" published in the . Fei and Ranis introduced dynamic elements to the labor surplus phase, clarifying the conditions under which agricultural productivity and intersectoral evolve, setting the stage for further extensions. Their collaborative work, including the 1964 book Development of the Labor Surplus Economy: Theory and Policy, established them as primary contributors to the model's early theoretical development.

Postwar Economic Context

The postwar period following witnessed widespread across and , with numerous new states achieving independence between 1945 and 1952, often through nationalist movements that challenged European colonial rule. These newly independent nations inherited economies heavily reliant on , characterized by abundant labor supplies in low-productivity subsistence sectors, where colonial exploitation had prioritized raw material exports over domestic industrialization or development. This structural legacy created urgent needs for economic transformation, as surplus rural labor and agrarian stagnation hindered broader growth in these labor-abundant economies. The wave of coincided with the emergence of as a distinct field in the late 1940s and 1950s, driven by the recognition of global economic disparities and the imperative to foster growth in impoverished post-colonial states. Key international institutions played pivotal roles: the World Bank, established in 1944 at the , shifted focus toward lending for development projects in poor nations, emphasizing and industrialization to alleviate poverty affecting hundreds of millions. Similarly, the , founded in 1945, promoted economic development through agencies like the Economic Commission for Asia and the (ECAFE), which highlighted the need for tailored strategies to support growth in newly sovereign countries facing weak institutions and limited capital. Intellectual foundations for addressing surplus labor in these contexts drew from classical economists, whose ideas on and were adapted to postwar development challenges. David Ricardo's surplus theory, which posited that economic rents arose from labor's marginal in , influenced analyses of underemployed rural workforces in developing economies. Karl Marx's concept of , rooted in the extraction of labor beyond subsistence needs under , provided a framework for understanding exploitative structures in traditional sectors, though reframed empirically for modern agrarian settings without revolutionary overtones. These classical insights, spanning from to Marx, underscored the potential for reallocating surplus labor to drive in industrializing economies. In the , the global push for economic self-sufficiency manifested in import-substitution industrialization (ISI) policies, particularly in and , where countries like , , , and imposed tariffs and subsidies to nurture domestic manufacturing amid foreign exchange shortages and unfavorable for primary exports. Advocated by economists at the United Nations Economic Commission for Latin America (ECLA), such as , ISI served as a backdrop for development strategies that sought to integrate traditional agrarian bases with emerging modern sectors, highlighting the era's emphasis on state-led industrialization to overcome colonial-era dependencies. In this milieu, contributed his 1954 framework to address labor transfers in dualistic economies.

Theoretical Foundations

Core Assumptions

The dual-sector model, as originally formulated by , rests on several foundational assumptions that delineate the structure and behavior of a developing divided between a traditional subsistence sector—typically —and a modern capitalist sector, usually industry. Central to the model is the premise of an unlimited supply of labor in the traditional sector, arising from relative to available capital and natural resources, which allows this labor to be available at a constant subsistence wage level without depleting the sector's workforce. This surplus labor condition implies a negligible or zero in , meaning additional workers contribute little to no extra output, with any gains from technological improvements or land reallocation accruing primarily to the remaining laborers rather than being shared broadly. In the modern sector, wages are assumed to be fixed at a constant markup over the subsistence level—often estimated at around 30% higher to account for urban living costs and social incentives—ensuring that labor costs remain stable as the sector expands by absorbing workers from the traditional sector. Labor mobility is perfect between the two sectors, enabling unrestricted movement of workers to the modern sector whenever opportunities arise at or above the subsistence , though this mobility applies only to labor and not to capital, which is confined to the capitalist sector for reinvestment purposes. The model operates within a closed framework, emphasizing internal driven by profits in the modern sector, without reliance on external or foreign to fuel growth. These assumptions collectively enable the model to analyze how surplus labor facilitates capital-intensive development in the modern sector while maintaining low wage pressures until the traditional sector's labor reserves are exhausted.

Model Dynamics

The dual-sector model elucidates via the continuous transfer of surplus labor from the traditional agricultural sector to the modern industrial sector, enabling expansion without an initial rise in agricultural , as the marginal productivity of labor in the traditional sector remains at or near zero. This labor mobility stems from the unlimited supply of workers willing to move at a constant subsistence level, facilitating the modern sector's absorption of additional to support production scaling. Capital accumulation in the modern sector is propelled by profits generated from industrial output, which exceed the subsistence payments to workers and are subsequently reinvested to augment capital stock and further labor . Industrial output is modeled as a function of capital and labor inputs, commonly represented as: Ym=f(Km,Lm)Y_m = f(K_m, L_m) where YmY_m denotes modern sector output, KmK_m is capital, and LmL_m is labor. Profits are then defined as the residual after costs: Profits=Ym−wLm\text{Profits} = Y_m - w L_m with ww as the fixed subsistence wage. These profits are saved and invested at the capitalists' savings rate ss, yielding the capital accumulation dynamic: dKmdt=s(Ym−wLm)\frac{dK_m}{dt} = s (Y_m - w L_m) This mechanism ensures that reinvested surplus expands industrial capacity, perpetuating labor absorption and output growth in the modern sector. Over time, the traditional sector experiences a progressive decline in its as workers migrate to industry, yet agricultural output is maintained through the reduced but adequate input from remaining laborers, whose suffices to meet subsistence needs without pressure. The process hinges on persistent productivity differentials, wherein the in the modern sector substantially exceeds that in the traditional sector, thereby incentivizing transfer and underpinning the model's envisioned structural transformation toward industrialization.

Turning Point

In the dual-sector model, the turning point represents the critical juncture at which the surplus labor in the traditional agricultural sector is fully depleted, causing the (MPL) in that sector to rise above zero and ending the unlimited supply of labor at subsistence wages. This occurs as in the modern industrial sector absorbs workers faster than replenishes the labor pool, shifting the from a phase of disguised to one of labor scarcity. Lewis described this as the moment when "capital accumulation has caught up with population, so that there is no longer surplus labour." As a consequence, wages in both the agricultural and industrial sectors begin to rise proportionally with labor productivity, marking the end of constant subsistence-level remuneration and leading to increased labor costs that slow the pace of in the modern sector. The surplus previously available for reinvestment diminishes, as higher wages reduce the profit share captured by capitalists, potentially constraining further industrial expansion unless offset by technological advancements or external factors like capital exports. This phase carries significant implications for , as workers' share of national income increases with rising , reducing the disproportionate profits accrued to capitalists during the surplus labor . In the traditional sector, the of labor may incentivize productivity-enhancing investments, fostering the emergence of commercial farming practices and a more market-oriented agricultural economy. Lewis originally depicted the turning point as a pivotal transition from "classical" labor market conditions—characterized by unlimited supply at fixed s—to "neoclassical" dynamics, where labor drives wage adjustments and alters the trajectory of .

Extensions and Refinements

Ranis-Fei Extension

The Ranis-Fei extension, introduced by Gustav Ranis and John C. H. Fei in , refines the dual-sector model by integrating improvements, which allows for a more nuanced analysis of labor reallocation and output dynamics beyond the original framework's assumption of static agricultural conditions. This approach emphasizes the role of technological progress or land augmentation in the traditional sector, enabling sustained food supply to support industrial expansion without immediate stagnation. Central to the model are three phases of economic development. Phase I features surplus labor in , where the marginal product of labor is zero, permitting unlimited transfer to the modern sector at a constant institutional without reducing agricultural output. Phase II marks the decline of surplus labor, driven by productivity gains that raise the agricultural marginal product above zero but below the institutional level, leading to disguised and gradual labor shifts. Phase III occurs post-turning point, with full labor exhaustion in and balanced growth across sectors as wages become market-determined. The agricultural sector's output is modeled as a function Ya=g(La,T)Y_a = g(L_a, T), where LaL_a denotes agricultural labor input and TT captures technology or land factors, ensuring that marginal productivity can increase prior to complete labor exhaustion and supporting output stability during reallocation. Wage adjustments reflect these dynamics: the institutional wage holds constant in Phases I and II, tied to average subsistence levels, with agricultural productivity improvements supporting output stability and food supply during reallocation. In Phase II, the rate of labor reallocation to the modern sector is governed by the condition that balances industrial with agricultural output requirements to sustain consumption in the expanding economy. By explicitly modeling these elements, the Ranis-Fei extension addresses a key oversight in the original model—the potential for agricultural stagnation and resulting supply constraints—through productivity-driven adjustments that promote more realistic, phased development in labor-surplus economies.

Other Variations

One notable neoclassical adaptation of the dual-sector framework was proposed by Dale W. Jorgenson in 1961, which assumes in both agricultural and industrial sectors from the outset and allows wages to vary flexibly based on marginal , thereby relaxing the institutional rigidities central to the original Lewis model. This variant emphasizes efficient resource allocation across sectors under constant , contrasting with the surplus labor assumptions of the baseline dynamics. In 1970, John R. Harris and Michael P. Todaro extended the dual-sector model to incorporate expected urban wages as the driver of rural-urban migration, accounting for the observed persistence of urban in developing economies. Their framework posits that migrants move based on the probability-weighted urban wage minus the rural wage, leading to equilibrium where expected incomes equalize despite open in the modern sector. This adaptation highlights how dualism influences labor mobility and urban job queues, providing a more realistic depiction of migration pressures. During the 1980s, several open-economy extensions integrated into the dual-sector structure, particularly focusing on how exports from the modern industrial sector could attract foreign capital inflows and accelerate structural transformation. For instance, models like Adlith Brown's analysis of employment policy in open dual economies illustrate how affects sectoral wage differentials and , with export-led growth in the modern sector drawing resources from traditional . These versions underscore the role of global markets in amplifying or mitigating dualistic imbalances. Dipak Mazumdar's work in the further refined the model by incorporating an informal urban sector as a third segment, capturing among urban migrants excluded from formal modern jobs. This integration treats the informal sector as a residual absorber of surplus labor, with wages determined by competitive forces below formal levels, thus extending dualism to explain heterogeneous urban labor markets and disguised . These variations, emerging primarily between the and , adapted the core dual-sector approach to grapple with accelerating , trade liberalization, and trends in developing economies.

Criticisms and Limitations

Theoretical Critiques

The dual-sector model, as originally formulated by Lewis, posits a constant subsistence in the traditional sector to sustain surplus labor transfer, yet this assumption overlooks significant social, cultural, and nutritional variations that influence levels across different regions and communities. For instance, subsistence requirements are not biologically fixed but shaped by local customs, family structures, and access to resources, leading to heterogeneous norms that the model fails to incorporate. This rigidity renders the mechanism theoretically incomplete, as it assumes uniformity where empirical and logical diversity prevails. Furthermore, the model's heavy reliance on in the modern sector as the primary driver of growth neglects the roles of development and technological spillovers between sectors. While the core assumptions emphasize reinvestment of capitalist profits to absorb labor, they undervalue how investments in , skills , or knowledge from the modern to traditional sector could accelerate gains across the . Critics argue this omission creates an overly narrow view of development dynamics, ignoring intersectoral linkages that could mitigate growth bottlenecks beyond mere expansion. The dual-sector framework also provides an inadequate treatment of , predicting that profits in the capitalist sector will fund reinvestment and eventual wage rises, while underplaying how the labor transfer process exacerbates inequality. Although the model acknowledges initial disparities between sectors, it does not sufficiently explore how surplus extraction from low-wage traditional workers concentrates wealth among modern sector owners, potentially hindering broad-based growth through reduced or social tensions. This theoretical shortfall assumes a frictionless progression where inequality is transient, yet the internal logic overlooks persistent distributional conflicts inherent in the surplus appropriation mechanism. In addition, the model's static depiction of distinct traditional and modern sectors fails to account for the blurring boundaries observed in real economies, such as hybrid agro-industrial activities that integrate elements of both. By treating sectors as rigidly separate with fixed characteristics, the framework disregards dynamic interactions like rural non-farm enterprises or mixed production processes that evolve over time, leading to an oversimplified representation of structural transformation. This limitation confines the model's applicability to idealized binaries, neglecting the fluidity that complicates labor and resource flows. A particularly pointed theoretical critique targets Lewis's assumption of an unlimited labor supply from the traditional sector, which is unrealistic in finite populations without perpetual demographic expansion, resulting in oversimplified growth paths. In a , the pool of surplus labor is inherently bounded, and the model's reliance on endless availability at subsistence levels ignores constraints like skill heterogeneity or migration frictions, distorting predictions about the duration and nature of the development phase. This foundational flaw propagates through the model's dynamics, assuming a linear transfer process that finite resources inevitably disrupt.

Empirical Challenges

One major empirical challenge to the dual-sector model lies in measuring surplus labor in the traditional sector, where the assumption of an unlimited supply at subsistence wages has proven difficult to verify. Cross-sectional micro-econometric studies from the 1970s and 1980s in Asian countries, such as and , revealed steeply rising labor supply curves within , indicating partial rather than unlimited surplus labor availability due to inelastic responses to wage incentives. These findings, based on household-level , highlight measurement issues arising from static analyses that overlook dynamic inter-sectoral reallocations central to the model. The model's prediction of a timely Lewis turning point—where surplus labor is exhausted and wages begin rising—has often been delayed in practice, particularly in large economies like and . In , surplus rural labor persisted into the early , with real agricultural wages remaining stagnant from 1993 to 2003 despite industrial growth, only surging post-2003 as evidenced by provincial surveys showing a shift to labor . Similarly, in , the turning point has not materialized even into the 2020s as of 2025, with surplus labor continuing due to structural barriers like land fragmentation and insufficient job creation, which limits farm consolidation and labor release, as observed in agricultural transformation analyses across developing . Empirical assessments of sectoral productivity gaps further challenge the model's unidirectional labor flow from low- to high-productivity sectors. World Bank analyses from the 1980s to document bidirectional spillovers, including transfers and reverse migration, which narrow gaps more dynamically than the one-way assumption predicts; for instance, improvements in emerging markets influenced urban sectors through input linkages and labor remittances. These interactions, evident in across developing economies, contradict the model's rigid separation by revealing mutual productivity influences that accelerate beyond isolated labor transfers. A specific illustration of these issues appears in , where the was estimated around the mid-1970s based on rising agricultural wages and urban labor absorption. However, empirical studies underestimated the role of urban informal , which absorbed a significant portion of migrants in small-scale traditional activities, with informal nonmanufacturing comprising around 70% of the sector in the 1970s—diverting labor from the modern industrial sector and prolonging disguised . The dual-sector model also overlooks and regional disparities in labor dynamics, which shows significantly alter surplus labor patterns. In rural areas of developing economies, women and minorities often face restricted mobility and lower participation rates due to cultural norms and access barriers, leading to underutilized female labor in and limited migration, as documented in gender-disaggregated data from and . World Bank research on structural transformation highlights how these disparities result in uneven labor reallocation, with rural women and ethnic minorities contributing disproportionately to subsistence activities without the model's anticipated shift to urban gains.

Applications and Evidence

Case Studies in Developing Economies

South Korea's economic transformation in the and exemplifies the dual-sector model's dynamics, with rapid industrial growth absorbing surplus rural labor into urban . During this period, employment in labor-intensive industries such as textiles and light expanded significantly, drawing workers from and reducing rural . Real earnings in rose by approximately 60% throughout the and more than doubled in the , reflecting the model's prediction of low modern-sector wages sustained by unlimited labor supply. The occurred around the mid-1970s, marking the exhaustion of surplus labor and the onset of wage pressures, with falling from 8% to 4% and wage growth outpacing output in 1976-1978, indicating convergence between agricultural and industrial wages as the labor surplus diminished. Taiwan's reforms in the provide a clear illustration of the Ranis-Fei extension to the dual-sector model, enhancing to support industrial transition. Implemented in three phases—rent reduction in 1949, sales in 1951, and the land-to-the-tiller program by 1953—the reforms redistributed over 143,000 hectares to tenants, reducing tenancy from 38% to 15% between 1950 and 1960. This boosted yields and productivity, with Phase II reforms increasing yields by 0.76% per 1% of transferred, aligning with the model's Phase I emphasis on agricultural modernization to generate surplus for reinvestment. Phase III further facilitated labor reallocation by creating smaller farms, decreasing the primary sector's and pushing workers—particularly women—into , consistent with the Ranis-Fei phases of surplus labor release. Empirical metrics show the agricultural labor force share declining from about 64% in 1950 to 31% by 1974, continuing to around 40% rural involvement by 2000 amid ongoing structural shifts. In since the , state-led industrialization has drawn hundreds of millions of rural workers into non-agricultural sectors, embodying the dual-sector model's labor transfer mechanism, though persistent rural highlights implementation challenges. Post-1978 reforms accelerated this process, with non-agricultural employment growing at 4.86% annually and labor reallocation contributing 1.23% to GDP growth from 1965 to 2002, peaking during 1978-1984. However, by the 2010s, marginal labor productivity in had surpassed average levels in many regions, indicating that passed the around 2010-2020, transitioning out of Phase II. Wage acceleration since 2003 (12-15% annually initially) has continued, reflecting labor scarcity as of the 2020s, though rural-urban divides persist with reduced surplus labor estimated below 50 million by 2020. As of 2025, 's passage of the turning point has led to challenges like labor shortages in and services, prompting policies to boost productivity and , while rural has shifted toward skill mismatches and aging workforce issues. The partial application of the dual-sector model in , particularly during the , reveals enclave effects in the modern sector with limited spillover to the . Oil revenues surged post-1973, elevating the sector's GDP share and creating a capital-intensive enclave that employed few locals and generated minimal linkages to or . This resulted in resource movement away from other sectors, with 's GDP contribution falling from 60% in 1960 to under 25% by the late , but without broad labor absorption or productivity gains in the rural economy due to weak spillovers. India's in the increased agricultural productivity through high-yielding varieties and inputs, delaying the dual-sector model's turning point by retaining surplus labor in the countryside longer than anticipated. Initiated amid crises in 1965-1966, the reforms boosted yields and output, particularly in and , enabling self-sufficiency but slowing structural transformation as higher rural incomes reduced migration incentives. This extended the surplus labor phase, with agricultural share remaining over 50% into the , per model extensions accounting for productivity shocks that postpone wage convergence and industrial absorption.

Policy Implications

The dual-sector model underscores the importance of targeted industrial policies to accelerate and absorb surplus agricultural labor, thereby driving structural transformation in developing economies. Governments are advised to promote industrial investment through subsidies, tax incentives, and (FDI) facilitation, as these measures expand the modern sector's capacity to employ underutilized rural workers at low wages, sustaining high savings rates for reinvestment. Such interventions align with the model's emphasis on the capitalist sector's role in generating growth without immediate wage pressures. In the agricultural sector, the model implies the need for reforms to boost productivity and prevent stagnation, including land redistribution to reduce disguised unemployment and technology adoption—such as improved seeds, , and extension services—to raise output without triggering sharp wage increases that could undermine industrial competitiveness. These steps ensure the traditional sector supports and releases labor efficiently, avoiding bottlenecks in the development process. To facilitate labor mobility, policies should focus on rural-urban infrastructure development, including transportation networks and , to lower migration barriers and mitigate risks of urban or informal sector proliferation. The model recommends prioritizing high savings rates among capitalists during the surplus labor phase to fuel industrial expansion, while post-turning point strategies shift toward investments to build for balanced, skill-intensive growth. In contemporary contexts, the dual-sector framework integrates with the ' 2030 Agenda for , informing inclusive transitions in by linking labor reallocation to goals like SDG 8 ( and ), SDG 9 (industry and ), and SDG 10 (reduced inequalities), while emphasizing environmental safeguards in . However, critics note that such policies may overlook market imperfections, necessitating complementary measures to address dualism's persistence.

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  50. http://ss.rrojasdatabank.info/chinalewis2.pdf
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  60. https://www.un.org/esa/desa/papers/2018/wp155_2018.pdf
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