Structural Change Model (Lewis Model):

The Structural Change Model was developed by Sir W. Arthur Lewis

in 1954. It explains how developing countries can achieve economic
development by transforming their economies from a traditional
agricultural system to a modern industrial system. According to
Lewis, economic development takes place through the transfer of
surplus labour from the low-productivity agricultural sector to the
high-productivity industrial sector. This structural transformation
increases production, employment, national income, and the
standard of living. Lewis divided the economy into two sectors: the
traditional agricultural sector and the modern industrial sector. The
agricultural sector is characterized by traditional methods of
production; low productivity, low wages, and disguised
unemployment, where more workers are employed than are
actually required. Therefore, the withdrawal of some workers does
not reduce agricultural output. In contrast, the industrial sector
uses modern technology, offers higher wages, and provides greater
productivity and employment opportunities. According to Lewis,
the process of development begins when industries offer higher
wages than agriculture. This encourages surplus workers to migrate
from rural areas to urban industrial centers. Since these workers
contribute very little to agricultural production, their migration
does not significantly reduce agricultural output. However, their
employment in industries increases industrial production and raises
the overall productivity of the economy.
Lewis argued that industrial expansion generates higher profits,
which are reinvested in establishing new factories, purchasing
modern machinery, and expanding existing industries. This creates
additional employment opportunities and attracts more workers
from agriculture to industry. As labour continues to shift to the
modern sector, industrialization expands, national income rises,
and economic development accelerates. This process continues
until all surplus labour in agriculture is absorbed by the industrial
sector. This stage is known as the Lewis Turning Point. After this
point, industries cannot recruit additional workers without offering
higher wages because surplus labour no longer exists.
Consequently, wages begin to rise, productivity improves further,
and the economy enters a new stage of sustained economic
development.

Rural–Urban Migration Model (Harris–Todaro Model):

The Rural–Urban Migration Model was developed by John R. Harris
and Michael P. Todaro in 1970. It explains why people migrate from
rural to urban areas in developing countries. According to Harris
and Todaro, migration is not determined merely by the difference
in rural and urban wages. Instead, people migrate because they
expect to earn a higher income and improve their standard of
living. Thus, the model explains the relationship between
migration, employment, and economic development. The model
describes the economy as consisting of two sectors: the rural
agricultural sector and the urban industrial sector. The rural sector
is characterized by low wages, limited employment opportunities,
and dependence on agriculture, whereas the urban sector offers
higher wages, better infrastructure, modern industries, and greater
employment opportunities. These differences encourage rural
workers to migrate to urban areas. The central concept of the
Harris–Todaro Model is the expected income principle. According
to the model, the decision to migrate depends on the expected
urban income rather than the actual urban wage. Expected income
is determined by two factors: the level of urban wages and the
probability of obtaining employment. Therefore, even when
unemployment exists in cities, workers may still migrate if they
believe they have a reasonable chance of securing a well-paid job.
As long as the expected urban income is greater than the rural
income, migration continues. According to Harris and Todaro,
migration reaches equilibrium when the expected urban income
becomes equal to the rural income. At this stage, workers no
longer have an economic incentive to migrate, and the flow of
migration gradually stabilizes unless there is a change in wages or
employment opportunities. However, excessive rural–urban
migration creates several economic and social problems. Since the
number of migrants often grows faster than employment
opportunities, many people remain unemployed or underemployed
in urban areas. Rapid migration also leads to overcrowding, the
growth of slums, housing shortages, and increased pressure on
public services and infrastructure. The Harris–Todaro Model
suggests that these problems cannot be solved merely by creating
more urban jobs, as this may attract even more migrants. Instead,
governments should promote balanced regional development by
improving agricultural productivity, creating employment
opportunities in rural areas, and providing better infrastructure.
These measures help reduce excessive migration and promote
balanced economic growth.

New Economic Geography (Paul Krugman):

The New Economic Geography (NEG) was developed by Paul
Krugman in the early 1990s. It explains why industries, firms, and
economic activities become concentrated in certain regions instead
of being evenly distributed across a country. According to Krugman,
regional economic development is influenced by factors such as
economies of scale, transportation costs, market size, and labour
mobility. The theory explains how these factors encourage the
growth of industrial centres and contribute to regional
development. Krugman argued that industries prefer to locate in
regions with large markets, skilled labour, good infrastructure, and
efficient transport facilities. When firms establish themselves in
one region, they generate employment opportunities and attract
more workers. The increasing population raises the demand for
goods and services, encouraging additional firms to locate in the
same area. This process leads to the concentration of industries
and population in particular regions, a phenomenon known as
agglomeration or industrial clustering. A key concept of the New
Economic Geography is economies of scale. As firms increase their
scale of production, the average cost of production declines,
making them more efficient and competitive. Firms located close to
one another also benefit from shared infrastructure, easier access
to suppliers, skilled labour, and specialized services. These
advantages reduce production costs and improve productivity,
encouraging further industrial expansion. Another important factor
in Krugman's theory is transportation cost. Lower transport costs
make it easier and cheaper to move raw materials and finished
goods between producers and consumers. This enables firms to
serve larger markets from one location and increases the benefits
of industrial concentration. Labour mobility also plays an important
role, as workers tend to migrate to regions offering better
employment opportunities and higher wages. The arrival of more
workers further expands the market, attracting new investment
and strengthening economic growth. Although industrial
concentration promotes economic growth, it may also increase
regional inequalities. Developed regions continue to attract
industries, investment, and skilled workers, while less developed
regions experience slower growth and fewer employment
opportunities. Therefore, Krugman emphasized the need for
government intervention through improved infrastructure,
transport, education, and industrial development in backward
regions to promote balanced regional growth

Process of Cumulative Causation (Gunnar Myrdal)

The Process of Cumulative Causation was developed by the

Swedish economist Gunnar Myrdal. According to Myrdal, economic
development is a continuous and self-reinforcing process in which
growth generates further growth, while underdevelopment leads
to further backwardness. Instead of reducing regional inequalities,
development often widens the gap between developed and less
developed regions.
Myrdal argued that market forces do not automatically bring
balanced regional development. Once a region begins to develop, it
attracts more industries, investment, skilled labour, and better
infrastructure. These advantages promote further growth, while
backward regions lose resources and opportunities, making
development more difficult. This continuous process is known as
cumulative causation. Myrdal explained this through the concept of
Core and Periphery. The Core refers to developed regions with
industries, investment, modern technology, and employment
opportunities. The Periphery refers to backward regions with low
income, poor infrastructure, and limited industrial development. As
the core attracts capital and skilled labour from the periphery,
regional inequalities continue to increase. An important part of the
theory is the Spread Effects and Backwash Effects. Spread Effects
refer to the positive effects of development that spread from
developed regions to surrounding areas. These include the transfer
of technology, better employment opportunities, improved
markets, increased trade, and the diffusion of knowledge and skills.
Spread effects help neighboring regions benefit from economic
growth and reduce regional inequalities. On the other hand
backwash effects are the negative effects, where developed regions
attract capital, industries, and skilled labour from backward areas,
leading to brain drain, low investment, unemployment, and slower
economic growth. Myrdal believed that in developing countries,
backwash effects are usually stronger than spread effects, causing
regional imbalances to widen. To reduce these inequalities, Myrdal
emphasized government intervention. Governments should invest
in infrastructure, education, transport, industries, and employment
opportunities in backward regions. Such policies strengthen spread
effects, reduce backwash effects, and promote balanced regional
development.