The role of capital accumulation in the industrialization of a labor surplus economy: A formulation of the Fei–Ranis model

The process of the reallocation of labor from agriculture to industry, outlined by Fei and Ranis, is examined by formulating a disequilibrium adjustment model of a dual economy. The main result of the analysis shows that capital accumulation and technological progress in industry can play a role in extracting labor from agriculture, dependent on whether or not the price elasticity of the demand for food is zero. This result is interpreted as whether capital accumulation and technological progress in industry contribute to the creation of a growing agricultural surplus, which Jorgenson advocated as the condition for economic development.