Sir Arthur Lewis
• Background information
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born in 1915 in the West Indies
received bachelor of Commerce
earned Ph.D in Industrial Economics
served as intern for U.N. Economic Advisor to
the Prime Minister
– President of Caribbean Development Bank
– Earned Nobel Memorial Prize in Economic
Science
Basic Goals and Questions
Lewis wants to find
• What is the appropriate size of the industrial
sector and how is modernization to be
financed?
• 3 strategies supporting industrialization
– export more agriculture commodities
– develop a self-sufficient economy emphasizing
the home markets
– export manufactores
Agriculture Exports
• Fits nations such as Burma, Thailand, Gold
Coast, and Uganda
• 2 arguments against this theory
– terms of trade argument
– dependency argument
Terms of Trade Argument
• This argument was also categorized in two
sub parts
– historical part (not discussed today)
– theoretical part
Theoretical Part
• If primary producers develop their exports
faster than the industrial countries demand,
then the terms of trade must move against
them
• Found that 85% (plus or minus) of growth
of production must exist to developed
countries
Dependency Argument
• Country begins to export agricultural
commodities and becomes paralyzed in it’s
industrial takeoff
• These profits are transferred overseas
instead of the country’s economy
• Best jobs are reserved for foreigners, and
local people are at loss
• Workers become upset and move or just
lower their standards
• Basically, import products are pushed into
the market while local producers suffer
massively
• This movement makes it harder to find good
jobs
• This is typically occurring in tropical
countries
• This study is consistent with the second half
of the 19th century but not the 20th century
Import Substitution
• Wages in one industry which is good pay
will bring wages up in other industries
beyond what they can afford (Dutch
Disease)
• This analysis shows prices and benefits cost analysis
• Causes a push or migration of people into
urban areas where work can be found
• Self - sufficiency
– import substitution strategy that relates to food
production for domestic market
– we do not know how much exactly to spend on
food production so we choose program
reasonably effective for our money
– there is a huge gap in country’s production of
food; tropic countries can produce up to 4%
and dry countries can barely make 2%
– gap will widen if something is not done
Export Manufactures
• This strategy basically was formulated for
overpopulated countries
• But problem is unpredictability factor
• Growth could be up to 10% a year but
behavior of developed countries is
unpredictable
• It all depends on if they return to a fast
growth of their GDP