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.
