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Lewis Turning Point

A Lewis Turning Point occurs when a country’s surplus labour evaporates, pushing up wages, consumption and inflation rates. Within a country the supply of migrants from the countryside might dry up causing urban wages to surge.

The Lewis turning point is a theory of economic development that explains how economies can grow and develop by moving labour and resources from the traditional sector (such as agriculture) to the modern sector (such as manufacturing). The theory was developed by economist Sir Arthur Lewis, who argued that as the modern sector grows and becomes more productive, it creates a surplus of labour that can be absorbed by the traditional sector. This process can continue until the supply of labour in the traditional sector is exhausted, at which point the Lewis turning point is reached. After the Lewis turning point, wages in the modern sector begin to rise and the rate of economic growth slows.

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