This paper modifies the neo-classical growth model of a dual economy by incorporating the following two characteristics: (1) ownership of capital by nonresident investors, and (2) intensive farming in the agrarian sector made possible by low-cost technology appropriate for smallholders. As a result of (1) a distinction is drawn between aggregate income and retained income, which, under certain conditions, can generate impoverishment with growth. The effect of (2) is that the marginal product of labour in the agrarian sector is no longer zero or negative as assumed in models of disguised unemployment and costless inter-sectoral labour transfers are, accordingly, unfeasible. The policy implications of the modified model favour a pro-rural strategy of development aimed at transferring resources into the agrarian sector to finance food production, human and physical capital formation, and other rural projects directly beneficial to rural communities. The paper is organised in five parts. The first part gives the basic structure of the modified neo-classical growth model of a dual economy. Part II examines the production and distribution effects of inter-sectoral resource transfers under competitive assumptions, while Part III introduces three types of economic exploitation: monopsony in the modern sector labour market, oligopoly and extended family exploitation. Part IV attempts to measure the extent of impoverishment in the agrarian sector in terms of food production which is sacrificed for resource transfers into the modern sector. In the final part of the paper, exploitation in the agrarian sector is considered in order to identify the most egalitarian agrarian development strategy. [ABSTRACT FROM AUTHOR]