Dual economy theory (1953)

Attributed to J H BOEKE from study of postwar Indonesia, dual economy theory refers to an economy in which rich, capital-intensive modern sectors exist in the same model as comparatively poor, traditional, labor intensive sectors.

Economists have deliberated over whether an economy should achieve economic growth through its technically advanced sectors or whether resources should be spread evenly across the whole economy to achieve a more balanced growth.

Also see: dependency theory, demographic transition

Source:
J H Boeke, Economics and Economic Policy of Dual Societies as Exemplified by Indonesia (New York, 1953)

dual economy is the existence of two separate economic sectors within one country, divided by different levels of development, technology, and different patterns of demand. The concept was originally created by Julius Herman Boeke to describe the coexistence of modern and traditional economic sectors in a colonial economy.[1]

Dual economies are common in less developed countries, where one sector is geared to local needs and another to the global export market. Dual economies may exist within the same sector, for example a modern plantation or other commercial agricultural entity operating in the midst of traditional cropping systems. Sir Arthur Lewis used the concept of a dualistic economy as the basis of his labour supply theory of rural-urban migration. Lewis distinguished between a rural low-income subsistence sector with surplus population, and an expanding urban capitalist sector (see Dual-sector model). The urban economy absorbed labour from rural areas (holding down urban wages) until the rural surplus was exhausted.[1]

A World Bank comparison of sectoral growth in Côte d’Ivoire, Ghana and Zimbabwe since 1965 provided evidence against the existence of a basic dual economy model. The research implied that a positive link existed between growth in industry and growth in agriculture. The authors argued that for maximum economic growth, policymakers should have focused on agriculture and services as well as industrial development.[2]

See also

  • Labour market segmentation
  • Social dualism

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