TheLewi
sTheor
yofDev
elopment
Oneoft hebest-knownearlytheor
eti
calmodelsofdev elopmentt hatfocused
on the str
ucturaltr
ansf ormat
ion ofa primari
lysubsi
stence economywas t hat
for
mulatedbyNobell aureateW.Ar t
hurLewisinthemid-1950sandl atermodi f
ied,
for
malized,andextendedbyJohnFei andGustavRani
s.TheLewi stwo-sect
ormodel
becamet hegeneraltheor yoft
hedev el
opmentprocessinsur plus-
laborThir
dWor l
d
nati
onsduringmostoft he1960sandearly1970s.
I
nt he Lewi s model ,t he under dev eloped economy consi sts of.t
wo sect ors;a
traditi
onal ,ov erpopulatedr uralsubsi stencesect orchar act eri
zedbyzer omar ginal
l
aborpr oduct ivit
yandahi gh-product ivi
tymoder nur bani ndust r
ialsectori ntowhich
l
aborf r
om t hesubsi stencesect ori sgr adual lytransferred.Thepr imaryf ocusoft he
modeli sonbot hthepr ocessofl abort ransf erandt hegr owthofout putandem-
ploymenti nt hemoder nsect or
.Bot hl abort ransf erandmoder nsectorempl oyment
growt har ebr oughtaboutbyout putexpansi oni nthatsect or .Thespeedwi thwhich
thisexpansi onoccur sisdet erminedbyt her at eofindust rialinvestmentandcapi tal
accumul ationi nthemoder nsect or.Suchi nvest menti smadepossi blebyt heexcess
ofmoder n-sectorpr ofi
tsov erwagesont heassumpt iont hatcapi t
ali
stsr einvestall
theirprof i
ts.Fi nall
y,thel evelofwagesi nt heur bani ndust ri
alsectorisassumedt o
beconst antanddet ermi nedasagi venpr emi um ov eraf ixedav eragesubsi st
ence
l
ev elofwagesi nt hetraditi
onalagr iculturalsect or.Lewi sassumedt hatur banwages
woul dhav et obeatl east30%hi ghert hanav erager uralincomet oinducewor kersto
mi gratefrom t heirhomear eas.Attheconst antur banwage, thesupplycur veofrural
l
abort ot hemoder nsect ori sconsider edtobeper fecdyel ast i
c.
Wecani l
lustr
at etheLewi smodelofmoder n-sectorgr owt hinat wo-sect or
economybyusi ngt hef ol
lowingf i
gure.Consi derf i
rstt het r
aditi
onalagr i
cultural
sectorpor tr
ay edint het wor i
ght-
sidediagrams.Theupperdi agram showshow
subsistencef oodpr oduct i
onv ari
eswi thincreasesi nl abori nputs.I tisat y
pi cal
agri
culturalproductionf uncti
onwher ethetotalout putorpr oduct( TPA)off oodi s
determinedbychangesi ntheamountoft heonl yv ari
ableinput ,l
abor( LA),givena
fi
xedquant i
tyofcapi tal,KA,andunchangingt radit
ionalt echnology,t A.I
nt helower
ri
ghtdi agram,wehav etheav er
ageandmar ginalproductofl aborcur ves,APLA and
MPLA,whi char ederivedf rom thetotalproductcur ve.Thequant i
tyofagr i
cultural
l
abor( QLA)av ail
ableisthesameonbot hhori
zont alaxesandi sexpr essedi nmi l
lions
ofwor kers.
, Lewismakest woassumptionsaboutt hetraditi
onalsector.Fi
rst ,ther
ei s
surpluslaborint hesensethatMPLA i szer o,andsecond,al lr
uralwor kersshar e
equallyintheoutputsot hattheruralreaLwagei sdet erminedbyt heav erageand
nott hemar gi
nalpr oductoflabor
.Assumet hatthereareLA agr i
cul
turalwor kers
producingTPA food,whi chissharedequal lyasWA f oodperper son( thisist he
averagepr oduct,which isequalt o TPA/LA).Themar ginalpr
oductoft heseLA
workersiszero,asshowni nthebottom diagram offi
gureb.
Theupper -l
eftdiagram ofFigureapor tr
ay sthetot alproduct(producti
onf unction)
curvesforthemoder n,indust
ri
alsector.Onceagai n,outputof,say ,manuf actured
goods( TPM)i saf uncti
onofav ari
ablelaborinput ,LM,foragivencapi talst
ockKM
andt echnology,tM.Ont hehori
zontalaxes,t hequant i
tyofl aborem¬pl oy edt o
produceanout putof ,say,TPW,withcapitalstockK ,i sexpressedi nthousandsof
urbanwor kers,LyIntheLewi smodel, t
hemoder n-sectorcapit
alst ockisall
owedt o
i
ncreasefrom Km toK^ 2to^3asaresul
toft hereinvestmentof
sTheor
yofDev
elopment
Oneoft hebest-knownearlytheor
eti
calmodelsofdev elopmentt hatfocused
on the str
ucturaltr
ansf ormat
ion ofa primari
lysubsi
stence economywas t hat
for
mulatedbyNobell aureateW.Ar t
hurLewisinthemid-1950sandl atermodi f
ied,
for
malized,andextendedbyJohnFei andGustavRani
s.TheLewi stwo-sect
ormodel
becamet hegeneraltheor yoft
hedev el
opmentprocessinsur plus-
laborThir
dWor l
d
nati
onsduringmostoft he1960sandearly1970s.
I
nt he Lewi s model ,t he under dev eloped economy consi sts of.t
wo sect ors;a
traditi
onal ,ov erpopulatedr uralsubsi stencesect orchar act eri
zedbyzer omar ginal
l
aborpr oduct ivit
yandahi gh-product ivi
tymoder nur bani ndust r
ialsectori ntowhich
l
aborf r
om t hesubsi stencesect ori sgr adual lytransferred.Thepr imaryf ocusoft he
modeli sonbot hthepr ocessofl abort ransf erandt hegr owthofout putandem-
ploymenti nt hemoder nsect or
.Bot hl abort ransf erandmoder nsectorempl oyment
growt har ebr oughtaboutbyout putexpansi oni nthatsect or .Thespeedwi thwhich
thisexpansi onoccur sisdet erminedbyt her at eofindust rialinvestmentandcapi tal
accumul ationi nthemoder nsect or.Suchi nvest menti smadepossi blebyt heexcess
ofmoder n-sectorpr ofi
tsov erwagesont heassumpt iont hatcapi t
ali
stsr einvestall
theirprof i
ts.Fi nall
y,thel evelofwagesi nt heur bani ndust ri
alsectorisassumedt o
beconst antanddet ermi nedasagi venpr emi um ov eraf ixedav eragesubsi st
ence
l
ev elofwagesi nt hetraditi
onalagr iculturalsect or.Lewi sassumedt hatur banwages
woul dhav et obeatl east30%hi ghert hanav erager uralincomet oinducewor kersto
mi gratefrom t heirhomear eas.Attheconst antur banwage, thesupplycur veofrural
l
abort ot hemoder nsect ori sconsider edtobeper fecdyel ast i
c.
Wecani l
lustr
at etheLewi smodelofmoder n-sectorgr owt hinat wo-sect or
economybyusi ngt hef ol
lowingf i
gure.Consi derf i
rstt het r
aditi
onalagr i
cultural
sectorpor tr
ay edint het wor i
ght-
sidediagrams.Theupperdi agram showshow
subsistencef oodpr oduct i
onv ari
eswi thincreasesi nl abori nputs.I tisat y
pi cal
agri
culturalproductionf uncti
onwher ethetotalout putorpr oduct( TPA)off oodi s
determinedbychangesi ntheamountoft heonl yv ari
ableinput ,l
abor( LA),givena
fi
xedquant i
tyofcapi tal,KA,andunchangingt radit
ionalt echnology,t A.I
nt helower
ri
ghtdi agram,wehav etheav er
ageandmar ginalproductofl aborcur ves,APLA and
MPLA,whi char ederivedf rom thetotalproductcur ve.Thequant i
tyofagr i
cultural
l
abor( QLA)av ail
ableisthesameonbot hhori
zont alaxesandi sexpr essedi nmi l
lions
ofwor kers.
, Lewismakest woassumptionsaboutt hetraditi
onalsector.Fi
rst ,ther
ei s
surpluslaborint hesensethatMPLA i szer o,andsecond,al lr
uralwor kersshar e
equallyintheoutputsot hattheruralreaLwagei sdet erminedbyt heav erageand
nott hemar gi
nalpr oductoflabor
.Assumet hatthereareLA agr i
cul
turalwor kers
producingTPA food,whi chissharedequal lyasWA f oodperper son( thisist he
averagepr oduct,which isequalt o TPA/LA).Themar ginalpr
oductoft heseLA
workersiszero,asshowni nthebottom diagram offi
gureb.
Theupper -l
eftdiagram ofFigureapor tr
ay sthetot alproduct(producti
onf unction)
curvesforthemoder n,indust
ri
alsector.Onceagai n,outputof,say ,manuf actured
goods( TPM)i saf uncti
onofav ari
ablelaborinput ,LM,foragivencapi talst
ockKM
andt echnology,tM.Ont hehori
zontalaxes,t hequant i
tyofl aborem¬pl oy edt o
produceanout putof ,say,TPW,withcapitalstockK ,i sexpressedi nthousandsof
urbanwor kers,LyIntheLewi smodel, t
hemoder n-sectorcapit
alst ockisall
owedt o
i
ncreasefrom Km toK^ 2to^3asaresul
toft hereinvestmentof
