Question

Arthur Lewis has a model in which the surplus labor is moved out of the backward agricultural sector and productively employed in the modern industrial sector. This process is known as modern sector enlargement. Do you think that this process is capable to deal with the problems of poverty and income inequality in all developing countries? You may argue for or against the Lewis Model.

Answer 1

W. Arthur Lewis in the mid-1950s outlined a model for the development of economy. Arthur Lewis has a model which depicted the dynamics of reallocation of labour in a ‘dual economy’ composed of subsistence or traditional sector and an industrial or a modern or capitalist sector. He argued that in developing countries capital accumulation's driver was a sectoral movement of the factor of production abundant; labour, from the ‘non-capitalist’ or ‘traditional’ sector (of widespread low wage, low productivity, priced to average product not marginal product, and therefore with plenty disguised unemployment) to the ‘modern’ or ‘capitalist’ sector (of higher productivity and where the productivity in the ‘subsistence sector’ sets the wages). In my opinion today also the Lewis model of economic development remains relevant to know the process of long run economic development or structural transformation. From low productivity agriculture transferring to low productivity services has been the experience of most of the developing nations in few cases