ABSTRACT
This chapter examines the potential contribution of two sector models to the formulation of agricultural development policy. In evaluating the potential contribution of two sector models, or any other analytical scheme, to agricultural development policy, it is desirable to maintain a sharp distinction between economic analysis and economic policy or planning. In Jorgenson's neoclassical model, the classical assumption of zero marginal productivity of labor and an "institutionally determined wage-rate" in the subsistence sector are dropped, and wage rates are determined in an intersector labor market. As a result, labor is never available to the industrial sector without sacrificing agricultural output, and the terms of trade move against the industrial sector continuously throughout the development process. In the two-sector models reviews the production relation for the agricultural sector is defined to include only land and labor. As with the growth-stage approach, primary emphasis is placed on the dynamics of the transition or "takeoff" into sustained growth.
