Economics

Study Notes

Lewis Model of Structural Economic Growth and Development

Level:
A Level
Board:
Edexcel, OCR, IB

What is the Lewis Model of Structural Economic Growth and Development?

Arthur Lewis put forward a development model of a dualistic economy, consisting of rural agricultural and urban manufacturing sectors

Initially, the majority of labour is employed upon the land, which is a fixed resource. Labour is a variable resource and, as more labour is put to work on the land, diminishing marginal returns eventually set in: there may be insufficient tasks for the marginal worker to undertake, resulting in reduced marginal product (output produced by an additional worker) and underemployment.

Urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts. The resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities and engage in manufacturing activity. High urban profits would encourage firms to expand and hence result in further rural-urban migration.

The Lewis model is a model of STRUCTURAL CHANGE since it outlines the development from a traditional economy to an industrialized one.

Evaluation:

  1. China provides a good example: official Chinese statistics place the number of internal migrants over the past 20 years at over 10% of the 1.3bn population. 45% were aged 16-25 and two-thirds were male. Urban incomes are around 3.5 times those of rural workers.
  2. A Marxist criticism states that profits will be retained by the capitalist entrepreneur, at the expense of workers. In addition, urban expansion might be driven by increases in capital rather than labour.
  3. Evidence suggests that surplus labour is as likely in the urban sector as in the agricultural sector. Migrating workers may possess insufficient information about job vacancies, pay and working conditions. This results in high unemployment levels in towns and cities.
  4. Towns and cities may also be fixed in size and unable to accommodate large numbers of immigrants. This gives rise to slums and shanty towns, which are often illegal, built on flood planes or areas vulnerable to landslides and without sanitation or clean water. Cape Town provides a good example. Globally 1bn people live in slums.

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