Dual Economy Thesis

Dual Economy Thesis Definition

The dual economy thesis is the argument that in third-world countries two economies operate side by side: a technologically advanced, urban-centered economy and a less sophisticated rural one. Originally associated with J. H. Boeke’s analysis of economic growth in underdeveloped nations in the early twentieth century, the thesis was developed as an alternative to underdevelopment theory, which saw the relationship between the two sectors as one in which the urban metropolis exploits the rural hinterland. Boeke argued instead that the two economies, though occupying the same national and cultural space, are economically separate and inhabit different economic realities: their relationship is minimal rather than exploitative.

Boeke’s Java

Boeke’s model grew from his study of colonial Java, where European-owned plantations run along rational and efficient capitalist lines coexisted with an indigenous agrarian economy whose peasants made no effort to emulate the European model. This was a dual economy of advanced and backward sectors that remained distinct. Boeke explained the separation by a difference of motivation — Europeans were driven by economic needs, Javanese peasants by social needs. His ideas about needs are no longer accepted, but his description of economies segmented into advanced and backward sectors continues to inform the study of developing societies.

Dualism in Advanced Economies

The idea of dualism has also been applied within advanced capitalist economies, notably Japan and the United States. Both contain a “core” sector of large corporations with sufficient economic power to manipulate their environments and dampen the disruptive effects of competition, alongside “peripheries” of smaller, less prosperous, and less stable firms. Where the two sectors relate, the relationship is asymmetrical: peripheral firms may depend on large corporations for business, but the corporations rarely depend on them. In this extended usage the dual economy concept links directly to theories of dual and segmented labor markets.