Fei ranis theory

Ranis also made the first formal empirical application, looking at Japan, which around was still a heavily agrarian developing economy. Below we develop this framework to apply to China. To help understand its structure, think of the starting point as a subsistence economy in which everyone is in agriculture, living a hand-to-mouth existence.

Fei ranis theory

Top 3 Models of Migration Article shared by: This article throws light upon the top three models of migration. An underdeveloped economy is a dual economy having two sectors: Out of these two, the latter is the predominant sector.

The subsistence sector is that part of Fei ranis theory economy which does not use reproducible capital. Labour is abundant and disguised unemployment is the result.

The marginal productivity of labour in the agricultural sector may be zero or even negative. In order to solve the problem of disguised unemployment. Lewis would like the capitalist industrial sector to be expanded by transferring labour from the subsistence rural sector to the capitalist sector.

He assumes that the supply of labour is perfectly elastic at the subsistence wage. Since the supply of labour is unlimited, new industries can be established or existing industries can be expanded without limit at the current wage i.

When people migrate from the subsistence sector to the modern sector, the wages should be higher in the capitalist sector than in the subsistence sector by a small but fixed amount.

Transfer of Labour to the Capitalist Sector: Lewis explains the process of transfer of labour with the help of figure 1. In the figure, the quantity of labour is shown on the X-axis and Y-axis represents wage and marginal product.

OA is the wage rate of the subsistence rural sector and OW of the capitalist industrial sector. WW1 shows that the supply of labour is perfectly elastic at OW wage rate.

N1D1 is the curve of marginal productivity of labour, which shows the demand of labour. Since the capitalist sector maximises profits, the wage rate remains equal to the marginal productivity of labour.

The key to the process is the use which is made of the capitalist surplus. The capitalist employment also increases with the reinvestment of profits and the expansion of the capitalist sector. The amount of fixed capital increases as a result of further investment and the marginal productivity of labour is also raised to N2D2 making the capitalist surplus and employment larger to the level of WP1N2and OL1respectively in the figure.

Fei-Ranis (FR) Model of Dual | APIO TEDDY - tranceformingnlp.com

Further, reinvestments raise the marginal productivity of labour to N3D3 and the level of employment to OL2 and so on.

This process will continue till the entire surplus rural labour is absorbed in the industrial sector. Thereafter, if additional workers are withdrawn from the rural subsistence sector to the industrial sector, there will be loss in food production in the rural sector because the ratio of workers to land will decline.

This means that the marginal productivity of the remaining labour force is no longer zero. Thus the supply curve of labour WW1 will slope from left to right upwards like an ordinary supply curve not shown in the figure and wages and employment will continue to rise with the growth of population and labour force in the long run.

In the Lewis model, migration is the result of concerted effort on the part ofthe state to transfer surplus rural labour to the industrial sector by developing the latter for capital formation.

The Lewis model of migration has been criticised on the following counts: Wage Rate not constant in the Capitalist Sector: The theory assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from the subsistence sector.

This is unrealistic because the wage rate continues to rise over time in the industrial sector of an underdeveloped economy even when there is open unemployment in its rural sector. Lewis assumes that the capitalist surplus is reinvested in productive capital.

But according to Reynolds, if the productive capital happens to be labour saving, it would not absorb labour and the theory breaks-down. This is shown in Fig. Skilled Labour not a Temporary Bottleneck: Given an unlimited supply of labour, Lewis assumes the existence of unskilled labour for his theory.

Skilled labour is regarded as a temporary bottleneck which can be removed by providing training facilities to unskilled labour. No doubt skilled labour is in short supply in underdeveloped countries but skill formation poses a serious problem, as it takes a very long time to educate and train the multitudes in such countries.Labor Surplus Revisited.

Fei ranis theory

Gustav Ranis. Abstract. (), and expanded upon by Ranis and Fei (, , ), theory is that the low marginal product of labor be initially below the bargaining wage, and that, over time, agricultural wages or income shares lag substantially behind increases in .

John Fei and Gustav Ranis have presented in an article entitled, “A Theory of Economic Development”, the process of rural-urban migration in underdeveloped countries.

The model is related to an underdeveloped economy having surplus labour but scarcity of capital. According to Chen (), Lewis-Ranis-Fei model should be considered a classical model because of the usage of industrial wage.

However, Jorgenson claims that once the commercialization point is reached, instead of the classical approach, the neo-classical theory of growth for an advanced economy is to be observed (Jorgenson, ).

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 labour, promotes industrialization and stimulates sustained development.

Fei-Ranis Model of Economic Growth. Submitted by: Neetu Sachdeva Manmeet the primitive sector consists of the existing agricultural sector in the economy. The Fei–Ranis model of economic growth is a dualism model in Development economics or Welfare economics. According to this theory/5(3).

Fei and Ranis developed the concept of non-redundancy coefficient T which is measured by T=ts/te. if Ot represents agricultural land and tE represents agricultural labor.

which is a measure of the relative availability of the two factors of production/5(2).

Dual-sector model - Wikipedia