TAILIEUCHUNG - Lecture Development economics - Lecture 19: Fei-Ranis (FR) Model of Dual Economy

The two economists John Fei and Gustav Ranis presented their dual economy model. There was a flaw in Lewis model that it did not pay enough attention to the importance of agriculture sector in promoting industrial growth. But Fei-Ranis (FR) model of dual economy explains how the increased productivity in agri. sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby a UDC moves from stagnation to self-sustained economic growth. | Fei-Ranis (FR) Model of Dual Economy Lecture 19 The two economists John Fei and Gustav Ranis presented their dual economy model. There was a flaw in Lewis model that it did not pay enough attention to the importance of agriculture sector in promoting industrial growth. But Fei-Ranis (FR) model of dual economy explains how the increased productivity in agri. sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby a UDC moves from stagnation to self-sustained economic growth. Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor. Basic Thesis of the Model: This theory is concerned with a poor economy which has following properties: (i) There is an abundance of labor in such UDC and shortage of natural resources. (ii) The population growth rate is very high which results in mass unemployment in the economy. (iii) The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labor is zero and negative in agriculture sector. (iv) There are certain non-agrarian sectors in the economy where there is reduced use of capital. (v) There is a dynamic industrial sector in the economy. Thus the model suggests that: "Economic development would be taking place if agricultural laborers are transferred to industrial sector where their productivity will increase". It is a dual economy where there is a stagnant agri. sector and dynamic industrial sector. The situation where MPL - 0, labor can be transferred to industrial sector without any loss in agricultural output. The real wages in industrial sector remains fixed and it is equal to the initial level of real income in agri. sector. Such wages are given the name of institutional wages. Stages of Fei-Ranis Model: Fei and Ranis develop their dual economy model with the help of three stages of economic growth. In the (a) part of the Fig., the labor supply curve is perfectly .

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