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2 ECONOMIC DEVELOPMENT AND STRUCTURAL TRANSFORMATION 17
rejected the assumptions of neoclassical economists of perfect competi-
tion, market clearing and full employment and Lewis (see 1958, pp. 8,
18) made the distinction between productive labor, which produced a
surplus, and unproductive labor, which did not.
There have been various critiques of the Lewis model, many of which
are of a “red herring” variety as Ranis (2004, p. 716) puts it, meaning
they are easily responded to or actually criticisms of Lewisians rather
than the writing of Lewis himself. Many relate to the assumption of
labor abundance in the subsistence sector (and thus the dominance of
the wage from that sector across the economy), and the emergence of
the urban informal sector, although Lewis’s conception of surplus labor
explicitly included the urban informal sector (see discussion in Fei &
Ranis, 1964; Harris & Todaro, 1970; Minami, 1973; Rosenzweig, 1988;
Schultz, 1964; Todaro, 1969).
A set of contemporary challenges throws up greater levels of complex-
ity. First, domestic labor migration may not be permanent but circular
(back-and-forth) or “commuting.” Second, the contemporary scale of
inter-sectoral resource flows via the growth of remittances further blurs
the line between sectors. Finally, the Lewis transition can take a variety of
forms beyond the anticipated one by Lewis and it is by no means guar-
anteed that the transfer will be from low- to high-productivity activities
as flagged by McMillan and Rodrik (2011). A transfer from low-produc-
tivity agriculture to low-productivity services has been the experience of
many developing countries and a reversing of the Lewis transition has
also been a phenomenon noted in a number of developing countries in
“premature deindustrialization.”
In sum, the Classical School approach to economic development is
that economic development is driven by changing structures of GDP
and employment that lead to productivity growth. As a result of the pro-
ductivity rates between sectors differing so substantially, the transfer of
labor and production is a major source of productivity gains and thus
economic growth.
notes
1. One hybrid is Diao et al. (2017, pp. 3–4) seek to link the structural dual-
ism of Lewis with the neoclassical model by arguing that the neoclassical
model shows the growth process within the modern sector and the dual
model shows the relationship among sectors.
Disrupted Development and the Future of Inequality in the Age of Automation