STRUCTURAL CHANGE THEORY

ASSUMPTIONS:
• The model explains how the developing
economy moves from a traditional agriculture
base to a manufacturing led economy.

• Developing economics had dual sector

1. Large Agricultural Sector
2. Small Industrial Sector
 Application to Economic Development

•The industrialists would have to offer higher wages to the workers to attract
them to migrate into the cities.
•The model suggested that if there is a surplus in the number of workers, by
taking out the workers from the agricultural sector and employing them into
the industrial sector would not decrease the food production.
•Those workers who moved away to the industrial sector would earn more
income and generate more savings, the amount of food available for the
remaining villagers will increase as the same amount food is distributing to
fewer people.
•The profits earned by the industrialists would be reinvested and the
demand for labor will increase.
•Increased in national output, investment and employment.
 CRITICISM
•The idea of low productivity in the agricultural sector may not always
Be true, it’s also depending on the season of the year, during the time
for harvest, there maybe high needs for labors.
•Increasing in technology would lead to a lower demand for labor in
the industrial sector.
•Higher income in the industrial sectors doesn’t mean the people will
receive more, they may choose to spend more on imports.
•The migration from rural area to urban area has gone too large that
the industrial sector can provide job for, thus lead to urban poverty
rather than rural poverty.
•May worsen the gap between the rich and the poor, worsen the
income distribution since the industrial workers earnings outstripping
those in the farming sector.