Sir W(illiam) Arthur Lewis - His contributions

Economist, born in St Lucia, West Indies. He completed his formal education in England and accepted a professorship at Princeton in 1963. The thrust of his contribution examined the economics of developing countries and their ‘dual economies’, ie small, urban, industrialized economic sectors surrounded by vast, rural, traditional areas. His work also dealt with the supply of labour in developing countries. In 1979 he shared the Nobel Prize for Economics with Theodore Schultz.

Sir William Arthur Lewis (January 23, 1915 – June 15, 1991) was a Saint Lucian economist well known for his contributions in the field of economic development.

His contributions

Lewis's Nobel prize-winning work consists of 2 models that describe and explain the problems facing developing nations.

Lewis's two-tier model (Dual Sector model)

This model at its simplest describes an economy with 2 sectors - traditional (with low wages and a nearly infinite supply of labour) and modern (where the bulk of the capital resides). The traditional sector's labour migrates to the modern capitalist sector, attracted by the initially higher wages. Competition forces the wages of workers in the modern sector down to the levels of those in the agricultural sector.

This model thus provides an explanation as to why so often in developing nations, wages remain low and capital rents high, even as development continues apace.

Lewis's terms of trade model

Lewis then modelled the way the terms of trade between developed and developing nations are determined. He showed that in trade between 2 groups of countries (rich and poor) who produce 2 products each (food in both, coffee in the poor countries and steel in the rich) and trade the products that are not produced in common, the terms of trade are determined by the relative labour productivities in the agricultural sector. Specifically, the low productivity of labour in the poor countries' agricultural sector compared to the rich countries' agricultural sector will determine the terms of trade between them.