Abstract
The article considers dual economy interlinkage between a capitalistically organized industrial sector and an agricultural sector. We construct a structuralist model of sectoral interlinkage to examine importance of the agricultural sector in a developing economy. We take agricultural output as fixed which, however, can change due to technological progress. The employment and output in the industrial sector are determined on the basis of profit maximization in presence of wage indexation. In this framework, under the assumption of fixed exchange rate regime, we examine the comparative static effects of rise in food production, rise in speculative hoarding of food and devaluation on macroeconomic variables, namely, industrial employment, output and inflation. The model has also been modified to consider effects of policy changes under flexible exchange rate regime.
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