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  • Macroeconomic Theories

Arthur Lewis's Model of Economic Development

Arthur Lewis's model describes a dual-sector economy, comprising a modern 'capitalist' industrial sector and a traditional 'subsistence' agricultural sector. In this framework, the subsistence sector consists of family farms that produce only enough for their own survival. The capitalist sector is characterized by businesses that innovate with new technologies to lower production costs and increase profits. When these businesses are profitable, they expand, creating a demand for labor that is met by drawing workers from the subsistence sector. This labor shift is a key component of the structural transformation of the economy. The model is also applied within macroeconomics to explain why the 'hockey stick' pattern of sustained growth has not yet occurred in some countries.

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CORE Econ

Introduction to Microeconomics Course

The Economy 2.0 Microeconomics @ CORE Econ

Ch.1 Prosperity, inequality, and planetary limits - The Economy 2.0 Microeconomics @ CORE Econ

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  • Malthusian Subsistence Equilibrium: Mechanism and Dynamics

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  • The Malthusian Poverty Trap: Mechanism and Economic Acceptance

  • Predominance of Agriculture Before 1800

  • Definition of an Economic Model

  • Malthus's Law

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  • Malthusian Assumption: Diminishing Average Product of Labour

  • Malthusian Assumption: Population Growth and Living Standards

  • Arthur Lewis's Model of Economic Development

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Learn After

  • Dual-Sector Economy in the Lewis Model

  • Labor Transfer in the Lewis Model

  • Application of the Lewis Model to Explain Delayed 'Hockey Stick' Growth

  • Productivity Growth from Labor Reallocation in the Lewis Model

  • Technological Innovation as a Driver of Growth in the Lewis Model's Capitalist Sector

  • Concept of Unlimited Supplies of Labour in the Lewis Model

  • According to the dual-sector model of economic development, which of the following best describes the primary catalyst for the structural transformation of an economy from a traditional, subsistence-based system to a modern, industrial one?

  • Wage Dynamics in a Dual-Sector Economy

  • A dual-sector economy consists of a low-productivity traditional sector and a high-productivity modern sector. According to the model explaining this structural transformation, arrange the following events into the correct logical sequence that leads to overall economic growth.

  • A developing country is observed to have a large agricultural sector and a growing industrial sector. However, as industries expand and hire more workers from rural areas, industrial wages rise sharply from the very beginning of this process, and food prices increase significantly due to a shortage of agricultural labor. Which aspect of this scenario presents the most significant challenge to the foundational assumptions of the dual-sector model of economic development?

  • Productivity Growth in a Dual-Sector Economy

  • Match each key concept from the dual-sector model of economic development with its correct description.

  • According to the dual-sector model of economic development, the initial expansion of the modern industrial sector and its absorption of labor from the traditional agricultural sector is expected to cause an immediate and significant rise in industrial wages.

  • Initiating Labor Migration in a Dual-Sector Economy

  • Critiquing the Dual-Sector Model in a Modern Context

  • Evaluating Development Policies in a Dual-Sector Economy