Lewis &

Fie and ranismodel

Growth and development.Topic- 4

Utilization of surplus manpower-1 and utilization of

surplus manpower-2

Arther Lewis developed his theory utilization of surplus

manpower in 1950.

Intro--

Lewis gave two sector surplus labour model.

He focused on structural transformation of primary

subsistence economy.

He wrote famous book- “economic development with

unlimited supply of labour”.

1.Lewis model

Assumptions--

1.It is two sector model

1.Rural subsistence sector.

2.Supply of labour is perfectly elastic.

6.Real wage rate is constant in subsistence sector.

2.Urban industrial sector.

3.Surplus labour in rural sector.(cheap labour)

4.Marginal productivity of labour is zero.

5.Capital formation accelerated by more utilizing the

unlimited supply of labour.

7.Saving is done by only capitalist.

8.There is negative aggregate demand.

9. This theory is applicable in LDC’s

10.Rise in profit of capitalist called – capital surplus.

11.Capital formation may increased with bank credit.

12. As there is increase in bank credit there could be

inflationary pressure.

Acc. To Lewis – investment in capitalist sector would

increased demand for labour.

If supply of labour unlimited at constant real wage rate

,profit and capital formation increase and national

income also increases.

Acc.to him inflation is self liquidating.

Capitalist surplus is rise due to rise in MPL.

Lewis model is applicable in both-

Closed economy and open economy.

Real wage rate determined by average not by MPL

Lewis model is also called – dual sector model.

Acc.to Lewis if there is increase in the wage rate by 15%

it will reduce profit by 12%.

2. Fie and ranis model

Intro--

This model is also called – utilization of manpower -2

This model is developed by John E.H.Fei and Ranis

There is existence of dual economy

1.Rural subsistence sector. 2.Urban industrial sector.

Agriculture sector generates surplus to finance the

development of industrial sector.

MPL is zero in subsistence sector.

Acc. To them central problem of dual economy is –

transfer of labour from agriculture to

non-agriculture sector.

Acc. To them main social problem is -over population.

They used ridged lines to explain dual economy.

This model is based on closed economy.

Industrial workers absorbs the maximum number of

agriculture workers.

Previous year ques.

Balance &

Unbalance Growth theory

Growth and development.Topic- 5

Balance & Unbalance Growth theory, Rodan ,

Nurkse big push