Abstract

Almost 60 years ago, Arthur Lewis published his seminal, classically-based dualism paper. Assuming a modern capitalist sector in urban centers of the LDCs and a traditional agricultural sector with an unlimited supply of labor in their rural areas, the policy implications of the model was that with the right mix of economic policies and resources, the disguised unemployed labor of the rural sector will eventually be absorbed into the modern capitalist sector, thus, transforming the poor underdeveloped economies into modern dynamic ones. Obviously this transformation did not take place. Instead, the migration of the traditional agricultural workers to the cities gave rise to another dualism, the formal-informal dichotomy. In this paper, after discussing the Lewis model, its significance to the history of development economics and its refinements by Fei, Ranis and others, the causes of the failure of the model will be explored. It will be argued that the assumptions of this classically-based model did not fit the realities of most contemporary LDCs, and that it could not predict the rise, or the significance, of the informal economy in the LDCs. Next, the various dimensions, causes, characteristics, and significance of the much neglected informal sector in the LDCs will be explained.

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