Question

Lewis two-sector model is said to be a good description of industrialization in East Asia. What is the essence of this model and what is its relevance to understanding economic growth in Asia?

Answer 1

The Lewis two-sector model also known as the surplus labor model.

Essence: The model focussed and emphasised on the need of countries to transform their structures from primarily agricultural with low productivity of labour to industrail activity with high productivity of labour.

It was argued so because usually in countries, the agriculture sector is employs a lot of people and their marginal productivity is very less. Moving some people out of it will not reduce the overall productivity of the sector. This labour can be transferred to the industrial sector. With adequate labour supply, these industries start making profits which can then be reinvested into more industrialisation which results in capital accumulation and thus economic development.

Economic Growth in Asia:

1. In India: More than half of the total workforce of India was employed in the agriculture sector. Despite that in the recent years, agriculture failed to cope up with the manufacturing and industrial sector and there was a huge transition of workforce from primary to the other sectors. Between 2009-10 and 2011-12, the employment in the industrial sector grew by approximately 16 million. Employment rate was the highest i.e around 8.5% per annum. During 2013-14 and 2015-16, the largest decline in employment was in the primary sector.. Yet, however the GDP of the primary sector was not falling rather rising, thus justifying the Lewis model. The number of absolute poors in the country fell and expenditure on durable and non durable goods also increased.

2. In China: China has been growing constantly for a few decades now. This growth is because of the modern sector which has been getting unlimited supply of labour force from primary sector. The labours migrate from the agricultural sector due to low wages and low standard of living. This helps the modern industrialised sector to earn profits and convert them into capital. However, recently, there has been an unrest in the labour market in China and it seems that it is on the verge of LewisTurning Point. It means that cheap labour is no more avialable which reduces the production in the industrialised sector and thus slows down the economy.

You can take other examples as well such as of Vietnam or Japan