Question

Using a Lewis labor surplus framework show graphically and explain how an increase in capital-augmenting agricultural (traditional sector) technology affects a country’s ability to achieve self-sustaining growth that is driven by modern sector capital accumulation.

Please answer the question as stated, talking about self sustaining growth. There is no need to explain what the Lewis theory is in detail. Just answer the question please

Answer 1

ANSWER:

The Lewis model invented by Arthur Lewis is a model in development economics .The growth of the developing economy is explained in terms of the transition of labor between Capitalist sector and the subsistence sector..With the growth of the Capitalist sector, labor from the subsistence sector is drawn into the Capitalist sector.Lewis has taken surplus labor in his model and so this move causes labor productivity to increase in the Capitalist sector .So new industries are created and the existing industries are expanded at the same wage rate.Surplus labor here refers to unproductive labor in the agricultural sector.Due to this transition general welfare and productivity will get better.Agricultural productivity will not change but industrial product will change due to increase in labor.But more labor will bring down marginal productivity and wage in the manufacturing sector.As this continues the wage rate in the subsistence sector will rise as all the surplus labor will be exhausted and will be equal to the wage rate in the industrial sector and workers will have no incentive to move.The use of more and more surplus labor from the agricultural sector to the Capitalist sector will increase capitalist surplus which is connected to economic growth.As long as capital accumulation increases ,national income also increases.

In the fig the industrial wage is above the subsistence wage and the capitalist will employ labor upto the point where productivity of labor is equal to the wage.OM shows marginal product is equal to the wage rate.When productivity increases , marginal product of labor shifts to the right ie N1.Employment rises to M1.at P' wage rate

wage ا د ومن المتسلیت marginal A Subsistance wage M Mi labour

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