July 1, 2005
Macro (8):
2005-7-6(Wed)
Takao Fujimoto: Fukuoka
Theories of Economic Development
References:
W. Arthur Lewis, Labour in the West Indies, London: Fabian Society, 1939.
*W. Arthur Lewis, “Economic Development with Unlimited Supplies of Labour”, Manchester School,
vol.22, 1954, pp.139-191.**
W. Arthur Lewis, The Theory of Economic Growth, London: George Allen & Unwin, 1955.
W. Arthur Lewis, “Reflections on Unlimited Labor” in Luis Eugenio di Marco (ed.), International
Economics and Development: Essays in Honor of Raul Prebish, New York: Academic Press,1972.
M. Gersovitz M., Selected Economic Writings of W. Arthur Lewis, New York: New York University
Press, 1983.
P.A.M. Emmanuel, Sir William Arthur Lewis: Collected Papers 1941-1988, (Barbados, Institute of
Social and Economic Research, University of the West Indies), Volumes I, II and III, 1994
Richard R. Nelson, “A Theory of the Low-Level Equilibrium Trap in Underdeveloped Economies”,
American Economic Review, vol.46, 1956, pp.894-908.
R. R. Nelson, and S.G. Winter, An Evolutionary Theory of Economic Change, Cambridge, MA:
Harvard University Press, 1982.
1. Nelson’s Model
See http://www.fondazionebassetti.org/0due/docs/nelson.htm
http://www.druid.dk/conferences/nw/
Variables and Constants :
Y :
S :
national income;
savings;
L : labor force;
I : investment;
y :
per capita(worker) national income =
σ :
capital-output ratio =
K : capital stock;
Y
;
L
K
.
Y
Functions (of per capita income) :
n(y) : rate of population growth;
s(y) : average saving ratio.
The Model:
Assumption 1: The capital-output ratio σ is constant.
Assumption 2: The rate n(y) is negative when y is very small, and then increases, gets
positive, attains the maximum, and finally starts to decrease.
Assumption 3: The ratio s(y) is negative when y is very small, and then increases and gets
positive.
The Dynamics:
yb =
µd¶
Y
L
b =K
c − n(y) =
= Yb − L
S
s(y) · Y
s(y)
I
− n(y) =
− n(y) =
− n(y) =
− n(y).
K
K
K
σ
July 1, 2005
Propositions:
Proposition 1. There can be multiple equilibria, and a poverty trap.
Proposition 2. To escape a poverty trap, a country may (i) increase the saving ratio;
(ii) decrease the rate of population growth, or (iii) borrow from , or exploit other countries.
Fig. Nelson’s Model of Development
2. Lewis’s Model
See http://cepa.newschool.edu/het/profiles/lewis.htm
http://www.econlib.org/library/Enc/bios/Lewis.html
http://www.uwichill.edu.bb/iser/William%20Arthur%20Lewis.pdf
(William Arthur Lewis was awarded the Nobel Memorial prize in 1979. )
W. Arthur Lewis [1915-1991]
Lewis Model: A dual economy, the traditional sector and the modern sector. In the former, labour
supply is unlimited, and the wage level is at the subsistence. Thus, the investment to improve the
productivity in the traditional sector has no good effect on a developing country.