Question

1. What policy implications arising from the Lewis model?
2. The 20 century will be remembered as an era of great achievement in human endeavor and enormous economic growth and prosperity. Nevertheless, as we have entered into 21 century, various development challenges need to be addressed. In light of this, what are the current trends and major issues for 21th century?
3. Despite the advantages of free trade, president Trump recently imposed tariffs on major USA allies. What arguments have been used to justify this position?

Answer 1

Answer: The Lewis model postulates the idea of dual sector model in the development economics. It also explains presence of dualistic economy where economy strives for structural change from traditional economy into industrial economy. The policy implications required successful transition of traditionally economy where labor is abundant to industrial economy where labor is scarce and has abundant capital is based in dualistic model concept. Lewis advocated the absorptions surplus labor from traditionally economy allows to create new industrial project. As such, absorptions of surplus labor from traditionally economy does not increase labor wage due surplus availability of labor and creates capital surplus, which increase the economic growth. This transition has major shortfall that absorption of labor is possible only when opportunity of labor is very low. However, this labor transition cause decrease in agricultural output. Further migration of labor from rural to urban leads may cause to increase wage which result in lowering profit. Increase in wages is the results of unions, which attracts more labor from traditional economy and cause increase in unemployment in urban sector and as well in rural sector