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Structural

The document discusses two structural-change models of economic development: the Lewis model and the patterns-of-development model. The Lewis model focuses on the transfer of labor from a subsistence agriculture sector to a higher productivity industrial sector. It has been criticized for assumptions about full employment and wage rates. The patterns-of-development model by Chenery emphasizes that both capital accumulation and changes in economic structure are needed for development, including a shift to industry, infrastructure growth, and changing consumer demands.

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Cara Lucille Diaz Ros
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42 views3 pages

Structural

The document discusses two structural-change models of economic development: the Lewis model and the patterns-of-development model. The Lewis model focuses on the transfer of labor from a subsistence agriculture sector to a higher productivity industrial sector. It has been criticized for assumptions about full employment and wage rates. The patterns-of-development model by Chenery emphasizes that both capital accumulation and changes in economic structure are needed for development, including a shift to industry, infrastructure growth, and changing consumer demands.

Uploaded by

Cara Lucille Diaz Ros
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Structural-Change Models Structural-change theory y focuses on the mechanism by which underdeveloped economies transform their domestic economic structures

from a heavy emphasis on traditional subsistence agriculture to a more modern, more urbanized, and more industrially diverse manufacturing and service economy examples of the structural-change approach o the two-sector surplus labor theoretical model of W. Arthur Lewis and o the patterns of development empirical analysis of Hollis B. Chenery and his coauthors

The Lewis Theory of Development y y y Formulated by Nobel laureate W. Arthur Lewis in the mid-1950s and later modified, formalized, and extended by John Fei and Gustav Ranis focused on the structural transformation of a primarily subsistence economy the underdeveloped economy consists of two sectors: o a traditional, overpopulated rural subsistence sector characterized by zero marginal labor productivity o a high-productivity modern urban industrial sector into which labor from the subsistence sector is gradually The primary focus of the model is on both the process of labor transfer and the growth of output and employment in the modern sector The Lewis Model of Modern-Sector Growth in a Two-Sector Modern Economy

y y

Criticisms of the Lewis Model o the model implicitly assumes that the rate of labor transfer and employment creation in the modern sector is proportional to the rate of modern-sector capital accumulation

o o

the notion that surplus labor exists in rural areas while there is full employment in the urban areas the notion of a competitive modern-sector labor market that guarantees the continued existence of constant real urban wages up to the point where the supply of rural surplus labor is exhausted

Patterns-of-Development Analysis y y increased savings and investment are as necessary but not sufficient conditions for economic growth. In addition to the accumulation of capital, both physical and human, a set of interrelated changes in the economic structure of a country are required for the transition from a traditional economic system to a modern one The best-known model of structural change is the one based largely on the empirical work of the late Harvard economist Hollis B. Chenery and his colleagues, who examined patterns of development for numerous developing countries during the postwar period Several characteristic features of the development process: o shift from agricultural to industrial production o the steady accumulation of physical and human capital o the change in consumer demands from emphasis on food and basic necessities to desires for diverse manufactured goods and services o the growth of cities and urban industries as people migrate from farms and small towns

decline in family size and overall population growth as children lose their economic value and parents substitute child quality (education) for quantity , with population growth first increasing, then decreasing in the process of development

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