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Modelling Economic Development: The Lewis Model Updated

Author

Listed:
  • Carmel Chiswick

    (George Washington University)

Abstract

This analysis updates the dual-economy model of economic development suggested by W. Arthur Lewis in 1954. The updated aggregate model incorporates advances since then in modern labor economics and the findings of empirical studies of LDC economies and it removes Lewis’ implicit assumption that capital-formation is costless to the host LDC country. Specifying investment in human capital for both sectors refocuses attention on workers’ well-being as the ultimate measure of development. Specifying the cost of capital formation permits the distinction between earnings that recover investment costs and the “surplus†available to workers for consumption. Policy implications include resolution of tradeoffs between “trickle-down†vs. “grass roots†development policies.

Suggested Citation

  • Carmel Chiswick, 2018. "Modelling Economic Development: The Lewis Model Updated," Working Papers 2018-5, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2018-5
    as

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    File URL: http://www2.gwu.edu/~iiep/assets/docs/papers/2018WP/ChiswickIIEP2018-5.pdf
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    References listed on IDEAS

    as
    1. Chiswick, Carmel U., 1986. "The efficiency-wage hypothesis : Applying a general model of the interaction between labor quantity and quality," Journal of Development Economics, Elsevier, vol. 20(2), pages 311-323, March.
    2. Amartya K. Sen, 1966. "Peasants and Dualism with or without Surplus Labor," Journal of Political Economy, University of Chicago Press, vol. 74(5), pages 425-425.
    3. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
    4. Chiswick, Carmel U., 1984. "The impact of education policy on economic development: Quantity, quality and earnings of labor," Economics of Education Review, Elsevier, vol. 3(2), pages 121-130, April.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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