Daily Current Affairs : 30-October-2023
Recently, developmental economists and experts have been analyzing the impact of the Lewis Model on different economies, particularly focusing on China and India. This model, also known as the Dual Sector model, provides valuable insights into the transition of labor between traditional agricultural sectors and modern industrial sectors, illuminating the journey of developing economies towards sustained growth and development.
The Dual Sector Model: Bridging the Gap
The Lewis Model delves into the dynamics of economic growth by emphasizing the labor transition between two key sectors: traditional agriculture and modern industry. In the agricultural sector, characterized by low wages, abundant labor, and low productivity, surplus labor is transferred to the modern industrial sector. Here, higher wages and demand for workers create a pathway for absorbing surplus labor, promoting industrialization, and catalyzing overall economic progress.
Diminishing Marginal Returns: Capital Intensity and Agricultural Output
One of the fundamental aspects of the Lewis Model is the concept of diminishing marginal returns. In this model, the manufacturing sector adopts capital-intensive production processes. Investment in physical capital in the manufacturing sector often takes precedence over improving the marginal productivity of labor in agriculture. As the agricultural sector faces limited land for cultivation, additional labor becomes unproductive, leading to stagnation in output.
Equalization of Sectors: Balancing Act for Economic Growth
To ensure balanced growth, a crucial step involves the equalization of wages and productivity in both sectors. As labor shifts from agriculture to manufacturing, the wages and productivity levels eventually balance out. While the agricultural sector witnesses an increase in productivity and wages, the manufacturing sector experiences a decline due to the influx of surplus labor. This delicate equilibrium signifies a critical turning point in the Lewis Model.
The Lewisian Turning Point: A Transition to Development
The Lewisian turning point marks the depletion of the surplus labor pool. At this juncture, the economy undergoes a significant transformation, resembling that of a developed economy. The equalization of wages and productivity levels signifies the completion of the labor transition process, paving the way for a stable and advanced economic landscape.
Important Points:
- Lewis Model in Focus:
- Recent scrutiny by experts, particularly in the context of China and India.
- Dual Sector Model:
- Explains labor transition between traditional agriculture and modern industry.
- Aims to drive economic development by moving surplus labor from agriculture to industry.
- Diminishing Marginal Returns:
- Manufacturing sector’s capital-intensive production processes.
- Investment prioritizes physical capital in industry over improving agriculture.
- Surplus labor in agriculture leads to stagnant output.
- Equalization of Sectors:
- Labor transition balances wages and productivity.
- Agricultural sector becomes more productive with higher wages.
- Manufacturing sector experiences a decline in productivity due to surplus labor.
- The Lewisian Turning Point:
- Marks the depletion of surplus labor.
- Economy begins to resemble a developed one.
- Equalization of wages and productivity signifies a successful labor transition.
- Lessons from the Lewis Model:
- Valuable insights for developing economies seeking sustainable growth.
- Balancing sectors is crucial for transitioning from agriculture to industry.
- Aids policymakers and economists in building resilient and prosperous nations.
Why In News
According to experts, while the Lewis Model has proven effective in China, it has faced challenges and limitations when applied in India, highlighting the need for region-specific economic strategies to foster sustainable development in diverse global contexts.
MCQs about The Lewis Model
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What does the Lewis Model primarily focus on?
A) Agricultural modernization
B) Labor transition between sectors
C) Financial market stability
D) Political reforms
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What is the significance of the Lewisian turning point?
A) Marks the end of industrial growth
B) Indicates surplus labor depletion and economic transformation
C) Denotes increased agricultural productivity
D) Represents the beginning of the labor transition process
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Why does the manufacturing sector in the Lewis Model face a decline in productivity?
A) Lack of skilled labor
B) High wages
C) Influx of surplus labor
D) Technological advancements
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What does the equalization of wages and productivity levels between sectors signify?
A) The end of economic growth
B) Successful labor transition
C) Increase in agricultural subsidies
D) Decline in industrial output
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