5 B. Structural Change Model — "development as transformation"

• Arthur Lewis' two-sector model (1954): a traditional agricultural sector with surplus labour (zero marginal product workers) and a modern industrial sector; growth = the transfer of labour from the former to the latter at subsistence-plus wages, with industrial profits reinvested — the arc of every industrial revolution. • Chenery's patterns of development: the empirical regularities — production shifts agriculture→industry→services; employment rural→urban; exports primary→manufactured; the deep change is structure, not just size. • Critique: the surplus labour may not be free to move (Nepal: it moves — to Qatar, not to domestic industry); urban wages don't stay at subsistence; and Lewis assumed absorbing sectors exist — Nepal's structural change runs on services and remittances more than factories. • Nepal as the caution case: a Lewis model where the modern sector is abroad — domestic industrialization postponed while the labour transfers anyway.