Contenido

Fei y Ranis hicieron gran hincapié en la interdependencia de los sectores industrial y agrícola y establecen que de existir una robusta conectividad entre los dos sectores, esto alentaría la velocidad del desarrollo. Si los trabajadores agrícolas buscan empleo industrial, y los sectores industriales emplean a más trabajadores por el uso de un mayor acervo de bienes de capital y tecnología intensiva en trabajo, esta conectividad puede trabajar entre el sector industrial y el agrícola. Ellos tomaron como ejemplo la economía dualista de Japón en el siglo XIX y dijeron que la conectividad entre los dos sectores de Japón se acentuó debido a la presencia de una industria rural descentralizada que fue a menudo vinculada a la producción urbana. Según ellos, se logra el progreso económico en economías dualistas de los países subdesarrollados a través del esfuerzo de un pequeño número de empresarios que tienen acceso a la tierra, poder de decisión sobre la utilización los bienes de capital y de consumo industrial de las prácticas agrícolas.

Agricultural sector

In (A), land is measured on the vertical axis, and work is measured on the horizontal axis. Ou and Ov represent two boundary lines, and the production isolines are represented by M, M, and M. The area bounded by the boundary lines defines the region of factor substitution, or the region where factors can be easily substituted. The repercussions of this are the following: If the quantity of labor is the total labor force in the agricultural sector, the intersection of the crest line Ov with the production curve M occurs at the point s making M perfectly horizontal below Ov. The horizontal behavior of the production line implies that outside the region of possibility of factor substitution, production stops and work becomes redundant once the land is fixed and labor is increased.[6]​.

If Ot is the total land in the agricultural sector, ts is the amount of labor that can be employed without becoming redundant, and es represents the redundant agricultural labor force. This led Fei and Ranis to develop the concept of the labor utilization ratio, which they define as the units of labor that can be productively employed (without redundancy) per unit of land. The figure on the left shows the relationship of labor utilization.

which is graphically equal to the inverted slope of the crest line Ov.

Fei and Ranis also construct the concept of endowment ratio, which is a measure of the relative availability of the two factors of production. In the figure, if Ot represents agricultural land and tE represents agricultural labor, then the endowment relationship is given by:

which is equal to the inverted slope of OE. The point of the real endowment is given by E.

Finally, Fei and Ranis developed the concept of the nonredundancy coefficient of T, which is measured by.

These three concepts helped them in formulating a relationship between T, R and S. If then.

This mathematical relationship demonstrates that the non-redundancy coefficient is directly proportional to the labor utilization rate and is inversely proportional to the staffing ratio.

(B) shows the total physical productivity of labor curve (TPP). The curve increases at a decreasing rate as more units of labor are added to a fixed amount of land. At point N, the curve gives a horizontal shape and this point N fits with the letter G in (C, showing the marginal productivity of labor (MPP) curve, and with point s on the ridge line Ov in (A).

Industrial sector

As in the agricultural sector, Fei and Ranis assume constant returns to scale in the industrial sector. However, the main factors of production are capital and labor. In graph (A) on the right hand side, the production functions have been plotted with labor on the horizontal axis and capital on the vertical axis. The expansion path of the industrial sector is given by the line OA or A 1 A 2. As the capital increases of K or of K 1 and K 2 and labor increases of L or of L 1 and L 2, the industrial production represented by the production contour Ao, A 1 and A 3 increases accordingly.

According to this model, the primary source of labor supply for the industrial sector is the agricultural sector, due to redundancy in the agricultural workforce. (B) shows the labor supply curve for the industrial sector S. PP 2 represents the straight part of the curve and is a measure of the redundant agricultural labor force on a graph with industrial labor on the horizontal axis and output/real wage on the vertical axis. Due to the redundant agricultural labor force, real wages remain constant, but once the curve begins to slope upward from point P2, the positive slope indicates that additional labor is supplied only with a corresponding increase in real wage levels.

MPP L curves corresponding to their respective levels of capital and labor have been drawn as o M, M 1, M 2 and M 3. As capital stock rises from K o K 1, the marginal product of labor rises from M o from M 1. When capital stock is K o, the MPP L curve cuts the labor supply curve at the equilibrium point Po. At this point, the total real wage income is W o and is represented by the shaded area POL o P o. λ is the equilibrium gain and is represented by the shaded area QPP o. Since workers have very low levels of income, it will hardly save that income and, therefore, industrial profits (π o) become the main source of investment funds in the industrial sector.

Here, K t gives the total supply of investment funds (taking into account that rural savings are represented by S o).

Total industrial activity rises due to the increase in the total supply of investment funds, leading to an increase in industrial employment.

Excedentes agrícolas en términos generales puede ser entendida como el producto de la agricultura, que es superior a las necesidades de la sociedad para la que se está produciendo, y puede ser exportado o almacenado para su uso futuro.

The generation of agricultural surpluses

To understand the formation of agricultural surpluses, we must refer to graphing (B) of the agricultural sector. The figure on the left is a reproduced version of a section of the previous graph, with some additions to better explain the concept of agricultural surplus. First, we derive the average physical productivity of the agricultural labor force (APP L). Fei and Ranis presume that it is equal to the real wage and this hypothesis is known as the institutional wage hypothesis constant. It is also equal in value to the ratio of total agricultural production to total agricultural population. Using this relationship, we can obtain APP L = MP/OP. This is graphically equal to the slope of the OM line, and is represented by the WW line in (C).

Observe point Y, somewhere to the left of P on the graph. If a section of redundant agricultural labor (PQ) is removed from the agricultural labor force (OP) and absorbed into the industrial sector, then the remaining labor force in the industrial sector is represented by point Y. Now, the output produced by the remaining labor force is represented by YZ and the real income of this labor force is given by XY. The difference of the two terms is obtained the total agricultural surplus of the economy. It is important to understand that this surplus is produced by the reallocation of labor so that it is absorbed by the industrial sector. This can be seen as the deployment of hidden rural savings for the expansion of the industrial sector. Therefore, we can understand the contribution of the agricultural sector to the expansion of the industrial sector by the allocation of redundant labor and the agricultural surplus that results from it.

Agricultural surpluses as a wage fund

Agricultural surplus plays an important role as a wage fund. Its importance can be better explained with the help of the graph on the right, which is an integration of the industrial sector graph with an inverted agricultural sector graph, such that the origin of the agricultural sector falls in the upper right corner. This reversal of the origin changes the shape of the graph now perceived. While the workforce values ​​are read from the left of 0, the output values ​​are read vertically downward from 0. The only reason for this reversal is for the sake of convenience. The marketing point, as explained above (see the section on Model Basics) is observed at point R, where the tangent to the ORX line runs parallel to OX.

Before a section of the redundant workforce is absorbed by the industrial sector, the entire OA of labor is present in the agricultural sector. Once AG amount of labor is absorbed (for example), it is represented by OG' in the industrial sector, and the labor remaining in the agricultural sector is then OG. But how is the amount of work absorbed by the industrial sector determined? (A) shows the labor supply curve SS' and various labor demand curves df, d'f' and d'f'. When the demand for labor is df, the intersection of the employment supply and demand curves gives the equilibrium point G'. Therefore OG represents the amount of labor absorbed by the industrial sector. In that case, the job left in the agricultural sector is OG. This OG quantity of labor produces an output of GF, of which GJ quantity of labor is consumed by the agricultural sector and JF is the agricultural surplus for that level of employment. At the same time, unproductive labor from the agricultural sector becomes productive once it is absorbed by the industrial sector, and produces an output of OG'Pd as shown in the graph, earning a total wage income of OG'PS.

The agricultural JF surplus created is needed for the consumption of the same workers who left it for the industrial sector. Therefore, agriculture successfully provides not only the labor for production activities elsewhere, but also the wage fund necessary for the process.

Importance of agriculture in the Fei-Ranis model

Lewis's model is criticized for considering that it leaves agriculture aside. Fei-Ranis model goes a step further and states that agriculture has a very important role to play in the expansion of the industrial sector. In fact, the growth rate of the industrial sector is said to depend on the amount of total agricultural surplus and the amount of profits earned in the industrial sector. Therefore, the larger the amount of surplus and the larger the amount of surplus put into productive investment and the larger the amount of industrial profits earned, the higher the growth rate of the industrial economy. As the model focuses on shifting the focal point of advances from agriculture to the industrial sector, Fei and Ranis believe that the shift in ideals takes place when industrial surplus investment funds and profits are large enough to purchase industrial capital goods such as plants and machinery. These capital goods are needed for the creation of employment opportunities. Therefore, the condition set by Fei and Ranis for a successful transformation is that.

Rate of increase of social capital and rate of employment opportunities > Rate of population growth.

As an underdeveloped country goes through its development process, work is reallocated from agriculture to the industrial sector. The higher the reallocation rate, the faster the growth of that economy. The economic logic behind this idea of ​​job reallocation is that of faster economic development. The essence of labor reallocation lies in Engel's Law, which states that the proportion of income spent on food decreases with the increase in an individual's income level, even if there is an increase in actual spending on food. For example, if 90 percent of the total population of the economy in question is engaged in agriculture, that leaves only 10 percent of the population in the industrial sector. As the productivity of agriculture increases, it becomes possible for only 35 percent of the population to maintain a satisfactory food supply for the rest of the population. As a result, the industrial sector now has 65 percent of the population under it. This is very convenient for the economy, as the growth of industrial goods is subject to the rate of per capita income, while the growth of agricultural products is subject only to the rate of population growth, so a larger labor supply for the industrial sector would be welcomed under the given conditions. In fact, this reallocation of labor becomes necessary over time as consumers begin to want more of industrial goods than agricultural goods in relative terms.

However, Fei and Ranis were quick to point out that the need for labor reallocation should be linked more to the need to produce more capital investment goods as opposed to the idea of ​​industrial consumer goods following the discourse of Engel's Law. This is because the assumption that the demand for industrial goods is high seems unrealistic since the real wage in the agricultural sector is very low and it hampers the demand for industrial goods. In addition to that, low and mostly constant wages will make wage rates in the industrial sector low and constant. This implies that demand for industrial goods will not rise at a rate as suggested by the use of Engel's law.

Since the growth process sees a slow pace increase in the purchasing power of consumers, dual economies follow the path of natural austerity, which is characterized by greater demand and therefore the importance of good capital industries compared to good consumers. However, investment in capital goods comes with a long gestation period, which drives private entrepreneurs away. This suggests that in order to enable growth, the government must intervene and play an important role, especially in the initial few stages of growth. In addition, the Government also works on social and economic expenses for the construction of roads, railways, bridges, educational institutions, health centers, etc.

In the Fei-Ranis model, it is possible that as technological progress takes place and there is a change in labor-saving production techniques, the growth of the economy occurs with increasing profits, but no economic development takes place. This can be explained well with the help of the graph in this section.

The graph shows two lines plotted with MPL real wage and MPL on the vertical axis and labor employment on the horizontal axis. OW represents the subsistence wage level, which is the minimum wage level at which a worker (and his or her family) would survive. The WW' line running parallel to the X axis is considered infinitely elastic as the supply of labor is assumed to be unlimited at the subsistence level of wages. The OWEN square area represents the wage bill and DWE represents the surplus or profits obtained. This surplus or profit can increase if the curve changes from MPL.[3]​.

If the MPL curve changes from MPL 1 to MPL 2 due to a change in production technique, so that it becomes labor saving or capital intensive, then the surplus or profit collected would increase. This increase can be seen by comparing DWE with D 1 D 1 from NOS NOS is already higher in the area compared to DWE. However, there is no new equilibrium point and, as E remains the equilibrium point, there is no increase in the employment level of labor, or wages for that matter. Therefore, employment of labor continues as ON and wages as OW. The only change that accompanies the change in production technique is that which is in surplus or profits.[3]​.

This makes it a good example of a growth without development process, as growth occurs with increased profits, but development is at a standstill as employment and wages of workers remain the same.[3]​.

The Fei-Ranis model of economic growth has been criticized on multiple grounds, although if the model is accepted, then it will have important theoretical and policy implications on the efforts of underdeveloped countries towards development and on the controversial statements that persist regarding vs. balanced debate on unbalanced growth.[5]​.

It has been claimed that Fei and Ranis did not have a clear idea of ​​the sluggish economic situation prevailing in developing countries. If they had thoroughly scrutinized the nature and causes of the existing situation, they would have found that the existing agricultural backwardness is due to the institutional structure, mainly the system of feudalism that prevailed.[7]​.

Fei and Ranis say: "It has been said that money is not a simple substitute for physical capital in an aggregate production function. There is reason to believe that the relationship between money and physical capital could be complementary to each other at some point in economic development, to the extent that credit policies could play an important role in alleviating bottlenecks in the growth of agriculture and industry." This indicates that in the development process they neglect the role of money and prices. They are not able to vary between wage labor and domestic labor, which is an important distinction for the evaluation of dualistic development prices in an underdeveloped economy.[7]​.

Fei and Ranis assume that MPP L is zero during the early phases of economic development, which has been criticized by Harry T.Oshima and some others on the basis that the MPP L of labor is zero only if the agricultural population is very large, and if it is very large, some of that labor will move to the cities in search of work. In the short term, this section of the labor force that has moved to the cities remains unemployed, but in the long term it is either absorbed by the informal sector, or returns to the villages and attempts to bring more marginal lands under cultivation. They have also left aside seasonal unemployment, which occurs due to seasonal change in demand for labor and is not permanent.[7]​.

To better understand this, we refer to the graph in this section, which shows Food on the vertical axis and Leisure on the horizontal axis. OS represents the subsistence level of food consumption, or the minimum level of food consumed by agricultural labor that is necessary for their survival. I 0 and 1 between the two raw materials of food and leisure (from farmers). The origin falls at G, such that OG represents the maximum work and labor would be measured from right to left. The SAG transformation curve falls from A, indicating that more leisure is being used for the same land units. At A, the marginal transformation between food and leisure and the MLP = 0 and the indifference curve I 0 is also tangent to the transformation curve at this point. This is the point of leisure satiation.

Contenido

Fei y Ranis hicieron gran hincapié en la interdependencia de los sectores industrial y agrícola y establecen que de existir una robusta conectividad entre los dos sectores, esto alentaría la velocidad del desarrollo. Si los trabajadores agrícolas buscan empleo industrial, y los sectores industriales emplean a más trabajadores por el uso de un mayor acervo de bienes de capital y tecnología intensiva en trabajo, esta conectividad puede trabajar entre el sector industrial y el agrícola. Ellos tomaron como ejemplo la economía dualista de Japón en el siglo XIX y dijeron que la conectividad entre los dos sectores de Japón se acentuó debido a la presencia de una industria rural descentralizada que fue a menudo vinculada a la producción urbana. Según ellos, se logra el progreso económico en economías dualistas de los países subdesarrollados a través del esfuerzo de un pequeño número de empresarios que tienen acceso a la tierra, poder de decisión sobre la utilización los bienes de capital y de consumo industrial de las prácticas agrícolas.

Agricultural sector

In (A), land is measured on the vertical axis, and work is measured on the horizontal axis. Ou and Ov represent two boundary lines, and the production isolines are represented by M, M, and M. The area bounded by the boundary lines defines the region of factor substitution, or the region where factors can be easily substituted. The repercussions of this are the following: If the quantity of labor is the total labor force in the agricultural sector, the intersection of the crest line Ov with the production curve M occurs at the point s making M perfectly horizontal below Ov. The horizontal behavior of the production line implies that outside the region of possibility of factor substitution, production stops and work becomes redundant once the land is fixed and labor is increased.[6]​.

If Ot is the total land in the agricultural sector, ts is the amount of labor that can be employed without becoming redundant, and es represents the redundant agricultural labor force. This led Fei and Ranis to develop the concept of the labor utilization ratio, which they define as the units of labor that can be productively employed (without redundancy) per unit of land. The figure on the left shows the relationship of labor utilization.

which is graphically equal to the inverted slope of the crest line Ov.

Fei and Ranis also construct the concept of endowment ratio, which is a measure of the relative availability of the two factors of production. In the figure, if Ot represents agricultural land and tE represents agricultural labor, then the endowment relationship is given by:

which is equal to the inverted slope of OE. The point of the real endowment is given by E.

Finally, Fei and Ranis developed the concept of the nonredundancy coefficient of T, which is measured by.

These three concepts helped them in formulating a relationship between T, R and S. If then.

This mathematical relationship demonstrates that the non-redundancy coefficient is directly proportional to the labor utilization rate and is inversely proportional to the staffing ratio.

(B) shows the total physical productivity of labor curve (TPP). The curve increases at a decreasing rate as more units of labor are added to a fixed amount of land. At point N, the curve gives a horizontal shape and this point N fits with the letter G in (C, showing the marginal productivity of labor (MPP) curve, and with point s on the ridge line Ov in (A).

Industrial sector

As in the agricultural sector, Fei and Ranis assume constant returns to scale in the industrial sector. However, the main factors of production are capital and labor. In graph (A) on the right hand side, the production functions have been plotted with labor on the horizontal axis and capital on the vertical axis. The expansion path of the industrial sector is given by the line OA or A 1 A 2. As the capital increases of K or of K 1 and K 2 and labor increases of L or of L 1 and L 2, the industrial production represented by the production contour Ao, A 1 and A 3 increases accordingly.

According to this model, the primary source of labor supply for the industrial sector is the agricultural sector, due to redundancy in the agricultural workforce. (B) shows the labor supply curve for the industrial sector S. PP 2 represents the straight part of the curve and is a measure of the redundant agricultural labor force on a graph with industrial labor on the horizontal axis and output/real wage on the vertical axis. Due to the redundant agricultural labor force, real wages remain constant, but once the curve begins to slope upward from point P2, the positive slope indicates that additional labor is supplied only with a corresponding increase in real wage levels.

MPP L curves corresponding to their respective levels of capital and labor have been drawn as o M, M 1, M 2 and M 3. As capital stock rises from K o K 1, the marginal product of labor rises from M o from M 1. When capital stock is K o, the MPP L curve cuts the labor supply curve at the equilibrium point Po. At this point, the total real wage income is W o and is represented by the shaded area POL o P o. λ is the equilibrium gain and is represented by the shaded area QPP o. Since workers have very low levels of income, it will hardly save that income and, therefore, industrial profits (π o) become the main source of investment funds in the industrial sector.

Here, K t gives the total supply of investment funds (taking into account that rural savings are represented by S o).

Total industrial activity rises due to the increase in the total supply of investment funds, leading to an increase in industrial employment.

Excedentes agrícolas en términos generales puede ser entendida como el producto de la agricultura, que es superior a las necesidades de la sociedad para la que se está produciendo, y puede ser exportado o almacenado para su uso futuro.

The generation of agricultural surpluses

To understand the formation of agricultural surpluses, we must refer to graphing (B) of the agricultural sector. The figure on the left is a reproduced version of a section of the previous graph, with some additions to better explain the concept of agricultural surplus. First, we derive the average physical productivity of the agricultural labor force (APP L). Fei and Ranis presume that it is equal to the real wage and this hypothesis is known as the institutional wage hypothesis constant. It is also equal in value to the ratio of total agricultural production to total agricultural population. Using this relationship, we can obtain APP L = MP/OP. This is graphically equal to the slope of the OM line, and is represented by the WW line in (C).

Observe point Y, somewhere to the left of P on the graph. If a section of redundant agricultural labor (PQ) is removed from the agricultural labor force (OP) and absorbed into the industrial sector, then the remaining labor force in the industrial sector is represented by point Y. Now, the output produced by the remaining labor force is represented by YZ and the real income of this labor force is given by XY. The difference of the two terms is obtained the total agricultural surplus of the economy. It is important to understand that this surplus is produced by the reallocation of labor so that it is absorbed by the industrial sector. This can be seen as the deployment of hidden rural savings for the expansion of the industrial sector. Therefore, we can understand the contribution of the agricultural sector to the expansion of the industrial sector by the allocation of redundant labor and the agricultural surplus that results from it.

Agricultural surpluses as a wage fund

Agricultural surplus plays an important role as a wage fund. Its importance can be better explained with the help of the graph on the right, which is an integration of the industrial sector graph with an inverted agricultural sector graph, such that the origin of the agricultural sector falls in the upper right corner. This reversal of the origin changes the shape of the graph now perceived. While the workforce values ​​are read from the left of 0, the output values ​​are read vertically downward from 0. The only reason for this reversal is for the sake of convenience. The marketing point, as explained above (see the section on Model Basics) is observed at point R, where the tangent to the ORX line runs parallel to OX.

Before a section of the redundant workforce is absorbed by the industrial sector, the entire OA of labor is present in the agricultural sector. Once AG amount of labor is absorbed (for example), it is represented by OG' in the industrial sector, and the labor remaining in the agricultural sector is then OG. But how is the amount of work absorbed by the industrial sector determined? (A) shows the labor supply curve SS' and various labor demand curves df, d'f' and d'f'. When the demand for labor is df, the intersection of the employment supply and demand curves gives the equilibrium point G'. Therefore OG represents the amount of labor absorbed by the industrial sector. In that case, the job left in the agricultural sector is OG. This OG quantity of labor produces an output of GF, of which GJ quantity of labor is consumed by the agricultural sector and JF is the agricultural surplus for that level of employment. At the same time, unproductive labor from the agricultural sector becomes productive once it is absorbed by the industrial sector, and produces an output of OG'Pd as shown in the graph, earning a total wage income of OG'PS.

The agricultural JF surplus created is needed for the consumption of the same workers who left it for the industrial sector. Therefore, agriculture successfully provides not only the labor for production activities elsewhere, but also the wage fund necessary for the process.

Importance of agriculture in the Fei-Ranis model

Lewis's model is criticized for considering that it leaves agriculture aside. Fei-Ranis model goes a step further and states that agriculture has a very important role to play in the expansion of the industrial sector. In fact, the growth rate of the industrial sector is said to depend on the amount of total agricultural surplus and the amount of profits earned in the industrial sector. Therefore, the larger the amount of surplus and the larger the amount of surplus put into productive investment and the larger the amount of industrial profits earned, the higher the growth rate of the industrial economy. As the model focuses on shifting the focal point of advances from agriculture to the industrial sector, Fei and Ranis believe that the shift in ideals takes place when industrial surplus investment funds and profits are large enough to purchase industrial capital goods such as plants and machinery. These capital goods are needed for the creation of employment opportunities. Therefore, the condition set by Fei and Ranis for a successful transformation is that.

Rate of increase of social capital and rate of employment opportunities > Rate of population growth.

As an underdeveloped country goes through its development process, work is reallocated from agriculture to the industrial sector. The higher the reallocation rate, the faster the growth of that economy. The economic logic behind this idea of ​​job reallocation is that of faster economic development. The essence of labor reallocation lies in Engel's Law, which states that the proportion of income spent on food decreases with the increase in an individual's income level, even if there is an increase in actual spending on food. For example, if 90 percent of the total population of the economy in question is engaged in agriculture, that leaves only 10 percent of the population in the industrial sector. As the productivity of agriculture increases, it becomes possible for only 35 percent of the population to maintain a satisfactory food supply for the rest of the population. As a result, the industrial sector now has 65 percent of the population under it. This is very convenient for the economy, as the growth of industrial goods is subject to the rate of per capita income, while the growth of agricultural products is subject only to the rate of population growth, so a larger labor supply for the industrial sector would be welcomed under the given conditions. In fact, this reallocation of labor becomes necessary over time as consumers begin to want more of industrial goods than agricultural goods in relative terms.

However, Fei and Ranis were quick to point out that the need for labor reallocation should be linked more to the need to produce more capital investment goods as opposed to the idea of ​​industrial consumer goods following the discourse of Engel's Law. This is because the assumption that the demand for industrial goods is high seems unrealistic since the real wage in the agricultural sector is very low and it hampers the demand for industrial goods. In addition to that, low and mostly constant wages will make wage rates in the industrial sector low and constant. This implies that demand for industrial goods will not rise at a rate as suggested by the use of Engel's law.

Since the growth process sees a slow pace increase in the purchasing power of consumers, dual economies follow the path of natural austerity, which is characterized by greater demand and therefore the importance of good capital industries compared to good consumers. However, investment in capital goods comes with a long gestation period, which drives private entrepreneurs away. This suggests that in order to enable growth, the government must intervene and play an important role, especially in the initial few stages of growth. In addition, the Government also works on social and economic expenses for the construction of roads, railways, bridges, educational institutions, health centers, etc.

In the Fei-Ranis model, it is possible that as technological progress takes place and there is a change in labor-saving production techniques, the growth of the economy occurs with increasing profits, but no economic development takes place. This can be explained well with the help of the graph in this section.

The graph shows two lines plotted with MPL real wage and MPL on the vertical axis and labor employment on the horizontal axis. OW represents the subsistence wage level, which is the minimum wage level at which a worker (and his or her family) would survive. The WW' line running parallel to the X axis is considered infinitely elastic as the supply of labor is assumed to be unlimited at the subsistence level of wages. The OWEN square area represents the wage bill and DWE represents the surplus or profits obtained. This surplus or profit can increase if the curve changes from MPL.[3]​.

If the MPL curve changes from MPL 1 to MPL 2 due to a change in production technique, so that it becomes labor saving or capital intensive, then the surplus or profit collected would increase. This increase can be seen by comparing DWE with D 1 D 1 from NOS NOS is already higher in the area compared to DWE. However, there is no new equilibrium point and, as E remains the equilibrium point, there is no increase in the employment level of labor, or wages for that matter. Therefore, employment of labor continues as ON and wages as OW. The only change that accompanies the change in production technique is that which is in surplus or profits.[3]​.

This makes it a good example of a growth without development process, as growth occurs with increased profits, but development is at a standstill as employment and wages of workers remain the same.[3]​.

The Fei-Ranis model of economic growth has been criticized on multiple grounds, although if the model is accepted, then it will have important theoretical and policy implications on the efforts of underdeveloped countries towards development and on the controversial statements that persist regarding vs. balanced debate on unbalanced growth.[5]​.

It has been claimed that Fei and Ranis did not have a clear idea of ​​the sluggish economic situation prevailing in developing countries. If they had thoroughly scrutinized the nature and causes of the existing situation, they would have found that the existing agricultural backwardness is due to the institutional structure, mainly the system of feudalism that prevailed.[7]​.

Fei and Ranis say: "It has been said that money is not a simple substitute for physical capital in an aggregate production function. There is reason to believe that the relationship between money and physical capital could be complementary to each other at some point in economic development, to the extent that credit policies could play an important role in alleviating bottlenecks in the growth of agriculture and industry." This indicates that in the development process they neglect the role of money and prices. They are not able to vary between wage labor and domestic labor, which is an important distinction for the evaluation of dualistic development prices in an underdeveloped economy.[7]​.

Fei and Ranis assume that MPP L is zero during the early phases of economic development, which has been criticized by Harry T.Oshima and some others on the basis that the MPP L of labor is zero only if the agricultural population is very large, and if it is very large, some of that labor will move to the cities in search of work. In the short term, this section of the labor force that has moved to the cities remains unemployed, but in the long term it is either absorbed by the informal sector, or returns to the villages and attempts to bring more marginal lands under cultivation. They have also left aside seasonal unemployment, which occurs due to seasonal change in demand for labor and is not permanent.[7]​.

To better understand this, we refer to the graph in this section, which shows Food on the vertical axis and Leisure on the horizontal axis. OS represents the subsistence level of food consumption, or the minimum level of food consumed by agricultural labor that is necessary for their survival. I 0 and 1 between the two raw materials of food and leisure (from farmers). The origin falls at G, such that OG represents the maximum work and labor would be measured from right to left. The SAG transformation curve falls from A, indicating that more leisure is being used for the same land units. At A, the marginal transformation between food and leisure and the MLP = 0 and the indifference curve I 0 is also tangent to the transformation curve at this point. This is the point of leisure satiation.