Question

Discuss the Lewis dualism model of economic development. In what ways does the model depict the experience of the four Asian NIEs with some degree of accuracy and in what ways is it at variance with their experience?

Answer 1

In 1954, in his now famous paper, Arthur Lewis – a St. Lucia (West Indies) born and U.K. educated Nobel Prize winning economist – introduced a classically-based theoretical model of economic development premised on the twin assumptions that there was an unlimited supply of labor in the traditional agricultural sector of the less developed countries and that, as the modern industrial urban sector in these countries grew, this vast pool of surplus labor would be absorbed.

This model, further refined by economists such as Fei and Ranis (1964), Harris and Todaro (1970), Fields (1975), and others, dominated the literature of development economics and more during the 1950s and the 1960s. According to a 2004 essay by Kirkpartrick and Barrientos, this seminal paper by Lewis “is widely regarded as the single most influential contribution to the establishment of development economics as an academic discipline”

Eventually the reservoir of surplus labor in the subsistence sector is exhausted, and wages in the subsistence sector begin to rise…” (2004, p. 682). Needless to say that in Africa and most countries of Asia and Latin America this transformation did not take place (and the optimism about economic growth prospects in those countries began to give way to concerns about persistent widespread unemployment in the urban sector). It seems that while people left the traditional agricultural sector for the modern capitalist centers, the modern-formal capitalist sector was unable to absorb them, or even absorb some of the unemployed in the urban centers. As a result, because capital-intensive production did not require much labor, a different dichotomy became pronounced in the urban centers of these countries – that of formal versus informal economies.

Lewis model (and its refinements) cannot provide a solution to the problem of poverty and underdevelopment in much of the contemporary world. For, its assumptions do not correspond to the realities of most present day LDCs, and it fails to explain the reality of the formal versus informal sectors in the less developed countries.