The Fei—Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply.
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The upcoming discussion will update you about the difference between Lewis model and Ranis-Fei model. According to Rains-Fai point end of the first phase in Fig 1 shows the Lewis turning point i. However Lewis himself did not consider this point as the upward turning point. For him all labour in the agriculture sector whose marginal productivity was either zero or was less than the institutional wage was available to the industrial sector at the institutional wage or at a rate a little above it, Fie never pointed out that as soon as the zero value labour was transferred to the industrial sector i.
For him some other labour too whose marginal productivity was less than the institutional wage, was also available at a constant wage rate. The reason for this difference in the views of the authors of two models is that unlike Ranis and Fei, Lewis did not take into account the effect of changing terms on trade on the supply price of labour in the industrial sector. He totally ignored it. Fie assumed as if the wages to the transferred labour will be paid in agricultural products and as the institutional wages fixed in terms of agricultural produce, the labour transferred to the industrial sector will continue to be available at the constant wage rate i.
Ranis and Fei, on the other hand assumed that the labour in the industrial sector will be paid, in terms of the industrial products and they had to bring the hanging terms of trade into the picture. Article Shared by Harsh Aditya. Related Articles. Changes in Terms of Trade between Agriculture and Industry.
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Fei–Ranis model of economic growth
Lewis Model and Ranis-Fei Model | Economics