MAECO Semester –II CC6 W. A . Lewis Model of

Transcript:MAECO Semester –II CC6 W. A . Lewis Model of:
MAECO Semester –II CC6 W. A . Lewis Model of Economic Growth By Dr. Manoj Prabhakar Assistant Professor Department of Economics Patna University, Patna email: mprabhakar1980@gmail.com The early theorectical model of development that focussed on the structural transformation of a primarily subsistence economy was that formulated by Nobel laureate W. Arthur Lewis in the mid-1950s and latter modified , formalised and extended by John Fei and Gaustav Ranis. The Lewis two-sector model became the general theory of development process in surplus labour Third World nations during the most of the 1960s and early 1970s. It still has many adherents today. This essay is written in the classical tradition, making the classical assumption and asking the classical question. The classics, from Smith to Marx, all assumed or argued that an unlimited supply of labour was available at subsistence wages. They then enquired how production grows through time. They found the answer in capital accumulation, which they explained in terms of their analysis of the distribution of income. Classical systems thus determined simultaneously income distribution and income growth, with the relative prices of commodities as a major by product. The purpose of this essay “ Economic Development with Unlimited Supplies of Labour” is to see what can be made of the classical framework in solving problems of distribution, accumulation and growth,first in closed and then in open economy. This two sector theory-subsistence sector and capitalist sector, has great analytical value. It explains how low capital formation takes place in underdeveloped countries which have abundance of labour and scarcity of capital. The problem of credit, inflation, population growth, technological progress and international trade gives the theory a touch of realism. In the Lewis model, the underdeveloped economy consists of two sectors: i. A traditional, overpopulated rural subsistence sector characterised by zero marginal labour productivity – a situation that permits Lewis to classify this as surplus labour in the sense that it can be withdrawn from traditional agriculture sector without any loss of output. ii. A high productivity modern urban industrial sector i.e. Capitalist sector into which labour from subsistence sector is gradually transferred. The primary focus of the model is on both the process of labour transfer and the growth of output and employment in modern sector. Both labour transfer and modern-sector employment growth are brought about by ouput expasion in that sector. The speed with which this expansion occurs is determined by