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Lewis Model of Structural Economic Growth and

Development
Levels: A Level Exam boards: Edexcel, OCR, IB, Other, Pre-U

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What is the Lewis Model of Structural Economic Growth and Development?

Arthur Lewis put forward a development model of a dualistic economy, consisting of

rural agricultural and urban manufacturing sectors

Initially, the majority of labour is employed upon the land, which is a fixed resource.
Labour is a variable resource and, as more labour is put to work on the land, diminishing
marginal returns eventually set in: there may be insufficient tasks for the marginal worker
to undertake, resulting in reduced marginal product (output produced by an additional
worker) and underemployment.

Urban workers, engaged in manufacturing, tend to produce a higher value of output than
their agricultural counterparts. The resultant higher urban wages (Lewis stated that a
30% premium was required) might therefore tempt surplus agricultural workers to
migrate to cities and engage in manufacturing activity. High urban profits would
encourage firms to expand and hence result in further rural-urban migration.

The Lewis model is a model of STRUCTURAL CHANGE since it outlines the development
from a traditional economy to an industrialized one.

Evaluation:

1. China provides a good example: official Chinese statistics place the number of internal
migrants over the past 20 years at over 10% of the 1.3bn population. 45% were
aged 16-25 and two-thirds were male. Urban incomes are around 3.5 times those of
rural workers.
 rural workers.

2. A Marxist criticism states that profits will be retained by the capitalist entrepreneur, at
the expense of workers. In addition, urban expansion might be driven by increases in
capital rather than labour.

3. Evidence suggests that surplus labour is as likely in the urban sector as in the
agricultural sector. Migrating workers may possess insufficient information about job
vacancies, pay and working conditions. This results in high unemployment levels in
towns and cities.

4. Towns and cities may also be fixed in size and unable to accommodate large numbers
of immigrants. This gives rise to slums and shanty towns, which are often illegal, built
on flood planes or areas vulnerable to landslides and without sanitation or clean
water. Cape Town provides a good example. Globally 1bn people live in slums.

W. Arthur Lewis

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Economics Study notes Arthur Lewis Lewis Turning Point

Economic development

Geoff Riley
Geoff Riley FRSA has been teaching Economics for nearly thirty years. He has
over twenty years experience as Head of Economics at leading schools. He
writes extensively and is a contributor and presenter on CPD conferences in the
UK and overseas.

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