In Todaro-Smith(2003), the structural-change theory focuses on the mechanism by which underdeveloped economies transform their domestic economic structures from a heavy emphasis on traditional subsistence agriculture to a more modern, more urbanized, and more industrially diverse manufacturing and service economy. It employs the tools of neoclassical price and resource allocation theory and modern econometrics to describe how this transformation process takes place. Two well-known representative examples of the structural-change approach are the “two-sector surplus labor” theoretical model of W. Arthur Lewis and the “patterns of development” empirical analysis of Hollis B. Chenery and his co-authors. But in this discussion, I will explain on “two-sector surplus labor” theoretical model only. The Lewis Theory of Development
The basic labour surplus model was, of course, very simple, elegant and to the point, a true reflection of the man. Arthur Lewis never favoured formal theorizing or complicated diagrams; he did not feel the need to present well-specified mathematical models. Where he excelled was in the strength of his intuition and his sense of history. He knew how to get to the heart of the matter and, in the process, succeeded in making economic development respectable in a number of ways. For one, he was one of those early birds who helped move this neglected sub-field of development economics away from the neglect of prices and the lack of faith in the potential for agricultural productivity change and exports. He did not share the commonly held belief in an all-powerful state which was expected not only to create the preconditions for development but also to organize most of the required directly productive activities. Lewis clearly saw the overarching need for private actors to complement government planners. Lewis moreover rejected the neoclassical assumptions of full employment, market clearance and perfect competition, even as he saw it as a...
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