The Micro-Foundations of Dual Economy Models
Wang, Xiaobing and Jenifer Piesse, The Micro-Foundations of Dual Economy Models, The Manchester School. 81(1): pp. 80-101, 2013
26 Pages Posted: 8 Aug 2013
Date Written: 2010
Abstract
Although dual economy models are widely recognized for their explanatory power and applications in development economics, their lack of micro-economic foundations and the associated loss of clarity has led to mainstream economists underplaying their importance. By providing a micro-economic foundation some of the underlying confusion is removed. Several questions are addressed. First, the patterns of production and population growth in the traditional agricultural sector are examined to show the connection between long run per capita income and subsistence wages. Second, proof of the existence of surplus labour and a definition of two types of surplus labour are offered. Third, two wage determination mechanisms in the modern sector and their relationships with the requirement for labour market restrictions are considered. Fourth, the role of agriculture and the food supply is discussed. Fifth, the dynamics of surplus labour and labour transfer are considered and two types of turning point are defined. In summary, this paper seeks to enhance the overall level of understanding of dual economy models and their application to the process of economic development.
Keywords: economic development, dual economy model, surplus labour
JEL Classification: O11, O12, O41
Suggested Citation: Suggested Citation