Q 4 , This was perhaps the single most influential article in the history of the

economics of development and raised a number of crucial issues in a clear and

systematic way (Lord Nicholas Stern, 1989). Based on Economic Development
with Unlimited Supplies of Labour, explain briefly how Lewis addresses the
problem of distribution, accumulation and growth in a closed and in an open
economy?
Answer -- Arthur Lewis developed a theory Economic Development with Unlimited Supplies of
Labour. Arthur Lewis divided the economy into two parts-closed economy and open economy
according to growth.
Growth in The closed economy --- according to this theory he said that In European parts of the
world where labour supply was limited so these country mostly focus on economic expansion. Other
side, the larger part of Asia where unlimited supply of labour. So they do not focus on the economic
expansion. He also said that some country like Africa and Latin America face shortage of male labour but
India Egypt, Jamaica have not this type problem .Those countries have a large population base on
agriculture where the marginal productivity is negligible, zero or even negative because natural
resources like land are limited but labour supply is unlimited .These people work on subsistence level
then marginal productivity goes down. Under developing countries face disguised unemployment
problem .This problem also helps with marginal productivity go down .This problem has created in the
agriculture sector most because many family members work on small land so some member do not help
to increase production. The agriculture sector is a large sector which provides jobs so agriculture sector
is very important for every developing economy. Land cannot increase but population increase rapidly
so people apply for casual jobs such as workers on the docks , petty retail sectors which another large
sector .These people get a smaller income than they do not able to save anything in income. We take
example of Barbados where 16 percent of the population is in domestic service. Most business in under
developing countries larger number of messenger employ whose contribution is almost negligible and
where people are working. in domestic sector marginal productivity is zero or negligible because these
message or people wage at the subsistence level. Arthur Lewis given some suggestion to solve this
problem. He said that we create new industries and expand to old industries then these industries
provide new job for people and get good wages. Many employments of women which do work outside
depend on some factors like religious and other. If women do work outside then they support to
national income. They can do work in grinding grain, fetching water from the river, making cloth, making
clothes, cooking the midday meal, teaching children, nursing the sick etc. He also gives given examples
in 1939, 52 women gainfully employed for every 100 100 men in Lancashire. This data shows that any
industries offered good job to women. He said that if we create new source for employment for women
outside the home then then it helps to increase national income. He said that the increase in population
is the result of economic development because birth rate high (have some good facilities like, better
communication ,public health facilities,)compare to death rate.in western Europe birth rate is fallen
during the last eighty years but Europe is developed continent. He has given 3
rd
reason for
unemployment increase is efficiency. The shortage of skilled of labour such as welders, engineers,
administers and other because these skilled workers get good wage then they move to another sector
and private sector do not provide training. He divides developing countries into two sectors capitalist
and subsistence sector. In the capitalist sector provide high wage and use better technology in
production then its produce high output and work for only profit. it is use reproducible capital .On the
other side, subsistence sector is not using reproduces use capital and output also lower. This sector
connect with agriculture. Capital investment in big industries such as mining or electric power then them
saving high. A gap of 30 percent or more between capitalist wages and subsistence earnings because of
the capitalist sector high cost of living standard, transport and rent costs etc. So people move to
capitalist sector. Lewis assumed that 90 percent of poor do not save because they get lower wages. All
saving is done by people who get profit. Most of sever are belong to capitalist sector.in subsistence
sector, people get lower wages then they spent all income in survive. If saving increase then profit
increase then national income also increases .We must focus on saving. Government affected the
process of capital formation in many ways. Government get some money in different ways like tax spent
for public activity such as road, hospital and other. If all classes refuse to accept a redistribution
between themselves and govern then price tend to rise continusly . Absorption of surplus labour when
capital accumulation go faster than population growth and move to people from subsistence sector to
capitalist sector. If we provide good technology in subsistence sectors then its help to increase to
national income.
Growth in Open economy --- If skilled worker goes to another place then production goes down
with demand because they help to increase profits so investment also increase. Unskilled labour do not
able to give profit then skilled labour replace to unskilled labour And help to increase profits. The export
of capital reduces capital formation at home, so keeps wages down .mass immigration of unskilled
labour might even raise output per head, but its effect would be to keep wages in all countries near the
subsistence level of the poorest countries. The most productivity investments are which are made to
open up reach such as fertile soil, ores, coal or oil because these products help to increase national
income that is the main reason then the last hundred years most of capital export went to the Americas
and Australasia rather than to India or china because where the resources (martials) were already used.
Lewis said that the two countries do not compete but trade with each other. He has given two reason
one where both are countries produce only one good but different goods in each then wage level are
not determined in relation to each other. Second, each country produce two or more goods, one of
which is common to both. Trade are now determinate but in first trade is not determinate.Lewis want to
say that trade is good for each country.