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Sir Arthur Lewis Development Structural Model

03 Sep

Arthur Lewis a black from the Caribbean was born in 1915 in the island of West Indies. He finished high school at 14 and entered London school of Economics in 1932 as the first black man. He graduated with first class and had his PHD in industrial economics. He is a great writer but we shall be focusing on his contribution to development economics.
Arthur Lewis was the brain behind the famous structural model that won him the Nobel Prize in Economics. As a matter of fact he is the only black man who has won the Nobel price. He is regarded as the father of development economics.
His model was based on his paper “development with unlimited supply of labour” in 1964. He said an economy can be divided into two sectors;
Modern sector or industrial sector
Traditional sector or agricultural  sector
The model is built based on the following assumptions
Developing sector can be divided into the sectors above
Traditional sector has surplus labour supply whose marginal productivity is zero(MP=0)
The modern sector depends on the traditional sector for labour supply
The wage in the modern sector is  fixed higher compared to the traditional sector
The marginal productivity of labour in modern sector is greater than zero
Labour migrates to the modern sector because of the fixed wage and better MP
How it works
Its assumed that when the modern sector intends to expand, they draw labour from the traditional sector. They continue to draw labour supply from the traditional sector until a point regarded as the turning point is reached. The turning point is the point at which it becomes impossible to draw labour from the traditional sector. Based on this structural model it’s at this point that development is attained as its impossible to get more labour to work with the modern sector from the traditional sector without being willing to pay higher than is attainable in the traditional sector to labour with MP greater than zero

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Posted by on September 3, 2014 in Economy with Julius, Uncategorized

 

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