AP MacroeconomicsInternational & Development Economics
Lewis Dual-Sector Model
The Lewis dual-sector model explains development as the transfer of surplus, low-productivity labor from a traditional agricultural sector to a modern industrial sector.
Arthur Lewis assumed agriculture holds 'surplus labor' whose marginal product is near zero, so workers can move to industry without reducing farm output. Industry pays a roughly constant wage (just above the subsistence/agricultural wage) and earns profits that are reinvested, expanding the modern sector and absorbing more labor. Development continues until the surplus is exhausted at the 'Lewis turning point', after which wages start rising.