Lewis Model of Economic Development

Study Notes

Lewis Model Outline

The main obstacle to economic growth in the Lewis model is the limited supply of labor in the urban advanced sector.
The primary assumption of the Lewis model is that there is surplus labor in the rural subsistence sector.
The main characteristic of the rural subsistence sector in the Lewis model is that wages are determined by the average product of labor, resulting in low wages and disguised unemployment.
The primary goal of the Lewis model is to understand how surplus labor in the rural subsistence sector can be transferred to the urban advanced sector to drive economic growth.
Disguised unemployment, according to the Lewis model, is a situation where workers are employed but their marginal product is zero, meaning they do not contribute to output.
The role of the urban advanced sector in the Lewis model is to absorb surplus labor from the rural subsistence sector and drive the industrialization process.
The main limitation of the Lewis model is its assumption of unlimited supply of labor, which is not always realistic due to factors such as geographic mobility, skill shortages, and urban unemployment.
The main consequence of disguised unemployment in the Lewis model is the potential for increased output and productivity in both sectors when surplus labor is transferred to the urban advanced sector.
The main mechanism of skill formation in the Lewis model is on-the-job training that occurs as workers transition from the rural subsistence sector to the urban advanced sector.
The main difference between the rural subsistence sector and the urban advanced sector in the Lewis model is the level of productivity and wages. The rural subsistence sector is characterized by low productivity and low wages, while the urban advanced sector is characterized by higher productivity and wages.
The main policy implication of the Lewis model is the need for government policies to support industrialization and promote the transfer of surplus labor from the rural subsistence sector to the urban advanced sector.

Description

Test your understanding of the Lewis model, a theoretical framework for studying the growth path of labour-surplus developing economies. This quiz covers the concept of dualistic economic development, disguised unemployment, and underemployment.