Dual Sector model

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, a traditional agricultural sector and a modern industrial sector.


Initially enumerated in an article entitled "Economic Development with Unlimited Supplies of Labor" written in 1954 by Sir Arthur Lewis, the model itself was named in Lewis's honor. First published in "The Manchester School" in May 1954, the article and the subsequent model were instrumental in laying the foundation for the field of Developmental economics. The article itself has been characterized by some as the most influential contribution to the establishment of the discipline.


The "Dual Sector Model" is a theory of development in which surplus labor from traditional agricultural sector is transferred to the modern industrial sector whose growth over time absorbs the surplus labor, promotes industrialization and stimulates sustained development.

In the model, the traditional agricultural sector is typically characterized by low wages, an abundance of labour, and low productivity through a labour intensive production process. In contrast, the modern manufacturing sector is defined by higher wage rates than the agricultural sector, higher marginal productivity, and a demand for more workers initially. Also, the manufacturing sector is assumed to use a production process that is capital intensive, so investment and capital formation in the manufacturing sector are possible over time as capitalists' profits are reinvested in the capital stock. Improvement in the marginal productivity of labour in the agricultural sector is assumed to be a low priority as the hypothetical developing nation's investment is going towards the physical capital stock in the manufacturing sector.

Since the agricultural sector has a limited amount of land to cultivate, the marginal product of an additional farmer is assumed to be zero as the law of diminishing marginal returns has run its course due to the fixed input, land. As a result, the agricultural sector has a quantity of farm workers that are not contributing to agricultural output since their marginal productivities are zero. This group of farmers that is not producing any output is termed surplus labour since this cohort could be moved to another sector with no effect on agricultural output. The term surplus labour here is not being used in a Marxist context and only refers to the unproductive workers in the agricultural sector. Therefore, due to the wage differential between the agricultural and manufacturing sectors, workers will tend to transition from the agricultural to the manufacturing sector over time to reap the reward of higher wages.

If a quantity of workers moves from the agricultural to the manufacturing sector equal to the quantity of surplus labour in the agricultural sector, regardless of who actually transfers, general welfare and productivity will improve. Total agricultural product will remain unchanged while total industrial product increases due to the addition of labour, but the additional labour also drives down marginal productivity and wages in the manufacturing sector. Over time as this transition continues to take place and investment results in increases in the capital stock, the marginal productivity of workers in the manufacturing will be driven up by capital formation and driven down by additional workers entering the manufacturing sector. Eventually, the wage rates of the agricultural and manufacturing sectors will equalise as workers leave the agriculture for the manufacturing, increasing marginal productivity and wages in agriculture whilst driving down productivity and wages in manufacturing.

The end result of this transition process is that the agricultural wage equals the manufacturing wage, the agricultural marginal product of labour equals the manufacturing marginal product of labour, and no further manufacturing sector enlargement takes place as workers no longer have a monetary incentive to transition.


The theory is complicated in reality by the fact that surplus labour is both generated by the introduction of new productivity enhancing technologies in the agricultural sector and the intensification of work. Also, the migration of workers from the countryside to the cities is an incentive towards those two phenomena as the relative bargaining power of workers and bosses varies and thus with it the cost of labour.

The wage differential between industry and agriculture needs to be sufficient to incentivise movement between the sectors and, whereas the model assumes any differential will result in a transfer.

The model assumes rationality, [perfect information] and unlimited capital formation in industry. These do not exist in practical situations and so the full extent of the model is rarely realised. However, the model does provide an good general theory on labour transitioning in developing economies.

Practical Application

This model has been employed quite successfully in Singapore. Ironically however it has not been employed in Sir Arthur Lewis' home country of St. Lucia.

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Dual-sector model — This article is about the economic model. For the diagram representing atomic bonding, see Lewis structure. Sir W. Arthur Lewis Sir William Arthur Lewis, official Nobel Prize photo …   Wikipedia

  • Dual economy — Part of a series on Economic systems Ideological systems Anarchist  …   Wikipedia

  • Economic development — is the development of economic wealth of countries or regions for the well being of their inhabitants. From a policy perspective, economic development can be defined as efforts that seek to improve the economic well being and quality of life for… …   Wikipedia

  • Development theory — is a conglomeration of theories about how desirable change in society is best to be achieved. Such theories draw on a variety of social scientific disciplines and approaches. Contents 1 Historical development theories 1.1 Modernization theory 1.2 …   Wikipedia

  • Stages of development — A stage of development may refer to: Biology: Prenatal development, also called fetal development, or embryology. Human development (biology) Psychology: Developmental stage theories Child development stages stages of child development Erikson s… …   Wikipedia

  • Critical minimum effort theory — The critical minimum effort theory has been given by Harvey Leibenstein, in his book Economic Backwardness and Economic Growth. This theory relates to overpopulated and underdeveloped or developing nations such as India and Indonesia.This theory… …   Wikipedia

  • Poland — /poh leuhnd/, n. a republic in E central Europe, on the Baltic Sea. 38,700,291; ab. 121,000 sq. mi. (313,400 sq. km). Cap.: Warsaw. Polish, Polska. * * * Poland Introduction Poland Background: Poland is an ancient nation that was conceived around …   Universalium

  • String theory — This article is about the branch of theoretical physics. For other uses, see String theory (disambiguation). String theory …   Wikipedia

  • Swinburne University of Technology — Swinburne University Logo Motto Factum per Litteras Achievement through learning [1] Established 1908 …   Wikipedia

  • CAC/PAC JF-17 Thunder — JF 17 Thunder FC 1 Xiaolong …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.