Subsistence Sector Advancement In The Lewis Model

Abstract

Decades after the publication of his seminal paper, “Economic Development with Unlimited Supplies of Labor,” W. Arthur Lewis’ contributions remain revered, relevant and contentious. Much of the discussion in the literature on Lewis’ work focuses on the transfer of labor from the subsistence sector to the capitalist sector, and the attendant arrival at what has become known as the Lewis Turning Point. As a result, the deeper thrust of Lewis’ paper is ignored and incorrect conclusions drawn about the Lewis model and its implications, especially as regards the subsistence sector, the importance of technology, and economic growth and development. This paper argues that the Lewis model supports the advancement of the subsistence sector for economic development, through technological advancement. Lewis’ seminal paper is clear on this. This important aspect of the Lewis model is not well ventilated in the literature and undermines the broader importance of the model. In fact, technological advancement has been seen by some as a shortcoming of the model as it could stall the transfer of labor from the subsistence sector to the capitalist sector, and in turn hinder the process of reaching the turning point. Using the Cobb-Douglas framework this paper argues against this view and examines technological advancement in all sectors, with specific emphasis on the subsistence sector. In the process, the superficial importance attached to the possible stalling of the labor transfer process is debunked. Indeed, the analytical framework provided by the Cobb-Douglas framework, in addition to Lewis’ description of his model, clearly shows how economic growth, and by extension development, continues in both sectors of the economy as a result of technological advancement. Surely, Lewis was more concerned with increasing the rate of savings, economic growth and development, and income distribution, as opposed to simply the transfer of labor. And what’s more, Lewis clearly did not view the transfer of labor as the sine qua non of economic growth and development. Finally, as regards policy implications, this paper supports the view of the importance of technological advancement in the subsistence sector as essential to sustainable economic growth and development.