CSIP: PRELIMS BOOSTER SERIES-204 Economics
Lewis Economic Model
The Lewis economic model is a dual-sector model of economic growth and development that was developed by Sir Arthur Lewis in 1954. The model describes a path whereby a developing economy can transition from a subsistence economy to a modern industrial economy by transferring surplus labor from the agricultural sector to the industrial sector.
- The Lewis model begins with the assumption that there are two sectors in a developing economy: the traditional sector and the modern sector.
- The traditional sector is characterized by low productivity, low wages, and a large surplus of labor.
- The modern sector is characterized by high productivity, high wages, and a shortage of labor.
- Lewis argues that economic growth can be achieved by transferring surplus labor from the traditional sector to the modern sector.
- This can be done by creating jobs in the modern sector and by making it more attractive for workers to move from the traditional sector to the modern sector.
- In the early stages of economic development, the modern sector is small and the traditional sector is large.
- As the modern sector grows, it absorbs labor from the traditional sector. This process continues until the traditional sector is depleted of surplus At this point, the economy is said to have reached the Lewis turning point.
- After the Lewis turning point, wages in the modern sector begin to This is because there is no longer a large surplus of labor to draw from.
- As wages rise, the traditional sector becomes more competitive and productivity in the traditional sector begins to increase.
The Lewis model has been influential in shaping economic policy in developing countries. Many countries have implemented policies designed to promote the growth of the modern sector and to attract labor from the traditional sector.
However, the Lewis model has also been criticized for being too simplistic. For example, the model does not take into account the role of technology in economic development. Additionally, the model assumes that the traditional sector is always able to absorb labor that is displaced from the modern sector.
Despite its limitations, the Lewis model remains an important tool for understanding economic development in developing countries. The model provides a framework for thinking about the relationship between the traditional sector and the modern sector, and it highlights the importance of labor transfer in economic growth.