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Economic Development

(2006a) On the other hand it relates to the determination of the terms of trade between developing and industrialised countries, with the former exporting raw materials and tropical products and the latter industrial products as "Arthur Lewis described the goal of economic development as the narrowing of the gap in per capita income between the rich and poor countries". (Hosseini, 2003, p. 91)
Two groups of countries i.e., north and south, rich and poor respectively, each produces two kinds of products, categorized as 'food' and 'coffee'. Food is common to both, while the other two referred to in the model as 'coffee' and 'steel' are exchanged. Lewis economic model explains as to how, subjected to certain specified conditions, the terms of trade will be determined by the relationship between labour productivity in agriculture of developing countries and industrialized countries. According to this analytical model, it is the low productivity of agriculture in the developing countries compared with agricultural productivity in the rich countries which decides the actual terms of trade between the two groups of nations". (2006a)
Professor Lewis' second main model despite disparate development perspectives, raised a number of unresolved interpretive problems that remain central to both political economy and the development debate uptill now. "These include, the following: (i) the potential role of individual choice and freely competitive markets vis-a-vis government coercion in transforming societies from poverty to riches; (ii) the interplay between capitalistic forms of organisation, growth of human populations, natural resource scarcity, technological progress, and persistent poverty; (iii) the tradeoff between economic growth and distribution, or between efficiency and equity or distributive justice; (iv) the role of agriculture vis-a-vis industry and free trade in the economic transformation process; and (v) whether the development process is smooth, linear, and evolutionary, or discontinuous, revolutionary, and dialectical in nature". (David, 1997, p. 23)

It we analyse Lewis traditional sector model with respect to contemporary developing economies, we would come to know that traditional sector is limited to consist of "labour intensive production methods that do not employ any reproducible capital. Examples include small scale farmers and farm laborers, construction gangs, retainers, domestic services and street-side services. In contrast the modern sector firms use physical and human capital intensive techniques. Examples include factory employment, large scale farms, and government administration". (2006b)

"The rationing of modern sector employment means that not all workers have access to modern technology. Thus the spread of technology depends on the expansion of the modern sector and hence, on the accumulation of physical and human capital. In this way productivity
growth is generated by factor accumulation as labour 'migrates' to the high productivity
modern sector". (2006b)

Lewis two sector model refers to today's under developed countries which are driven by low wages and infinite supply of labour. "Observers of such labour markets had ...Show more

Summary

Dual economy model developed by William Arthur Lewis explains the two sectors economy confronted by the developing countries; one refers to the traditional sector of the economy followed by low wages and infinite supply of labour whereas the other refers to the modern sector…
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