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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.
A dual economy is the existence of two separate economic sectors within one country, divided by different levels of development, technology, and different patterns of demand. The concept was originally created by Julius Herman Boeke to describe the coexistence of modern and traditional economic sectors in a colonial economy.
Depiction of Phase1, Phase2 and Phase3 of the dual economy model using average output. One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector.
In this publication, he introduced what came to be called the dual sector model, or the "Lewis model". [25] Lewis combined an analysis of the historical experience of developed countries with the central ideas of the classical economists to produce a broad picture of the development process.
Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (w A), decreasing the expected rural income. However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model.
The Lewis turning point is a situation in economic development where surplus rural labor is fully absorbed into the manufacturing sector. This typically causes agricultural and unskilled industrial real wages to rise. The term is named after economist W. Arthur Lewis. Shortly after the Lewis point, an economy requires balanced growth policies. [1]
There is a low degree of mechanisation coupled with rain dependence. So while a large proportion of the population (70–80%) may be actively employed in the agriculture sector, the contribution to the Gross Domestic Product may be as low as 40%. [7] This points to the need to increase output per unit input and output per head.
Within a dual sector economic model the Chilean hacienda has been characterized as a prime example of a primitive and rural component. [64] McBride, a British who visited Chile in the 1930s, is reported to have been "astounded" to see haciendas with "agricultural methods that reminds of ancient Egypt, Greece or Palestine." [65]