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

See all articles by Xiaobing Wang

Xiaobing Wang

The University of Manchester - Economics - School of Social Sciences and Centre for Chinese Studies

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

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

Wang, Xiaobing and Piesse, Jenifer, The Micro-Foundations of Dual Economy Models (2010). Wang, Xiaobing and Jenifer Piesse, The Micro-Foundations of Dual Economy Models, The Manchester School. 81(1): pp. 80-101, 2013 , Available at SSRN: https://ssrn.com/abstract=2307612

Xiaobing Wang (Contact Author)

The University of Manchester - Economics - School of Social Sciences and Centre for Chinese Studies ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

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