Dual Economy Model a Critique

1768 WordsJan 31, 20118 Pages
3.7 DUAL ECONOMY MODELS: A CRITIQUE The growth models considered in Chapter 2 are highly aggregative and some economists (Lewis 1954; Fei and Ranis 1961, 1964; Jorgenson 1961, 1967; Dixit 1968, 1971; Kelly et al. 1972) began to analyse the problems in terms of two sectors, namely agriculture and industry. Briefly, the socalled traditional noncapitalist agricultural sector is supposed to be unresponsive to economic incentives and here the leisure preferences are imagined to be high; production for the market does not take place and producers apparently do not follow profit-maximizing rules: ‘disguised’ or open unemployment is supposed to prevail throughout the rural sector and indeed the marginal productivity of labour is expected to be…show more content…
It is contended that to take care of the interdependence between terms of trade and supply price of labour, a general equilibrium analysis may be necessary. Dixit implies that the important factors that affect the shadow price of labour are the degrees of suboptimality of savings (the shadow price of savings in terms of consumption) as well as the price and income elasticities of the demand for food. In general equilibrium analysis, if the interdependences are to be dealt with simultaneously, it becomes difficult to see how the results rest on the premises or whether the ‘tail is wagging the dog’. Again, Dixit’s assumption that the only activity which can be undertaken in the traditional sector is food production is not easy to accept. The traditional sector also enters into non-agricultural activities; market wages and the shadow price of labour could be different because of taxes which may be influenced by the elasticity of marketed surplus. In any case, Dixit does not give much emphasis to the agricultural sector in his earlier model. Thus, the closed economy models of the dual economy may be misleading (Newbery 1974:41) and the empirical estimation of a general equilibrium model is very difficult. It seems that although the writers on the dual economy models adopted a useful approach to analyse the problems of LDCs, most of their work is devoid of any rigorous
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