W. Arthur Lewis: Development and the Dual Economy

The Caribbean-born economist who explained how poor economies grow by moving workers from farming into modern industry, and the first Black Nobel laureate in economics.

William Arthur Lewis was born in 1915 on the Caribbean island of Saint Lucia, then a British colony. He won a scholarship to the London School of Economics and became a leading figure in the study of economic development. In 1979 he shared the Nobel prize in economics with Theodore Schultz, becoming the first Black person to win a Nobel prize in a field other than peace.

The dual economy

In a famous 1954 paper, “Economic Development with Unlimited Supplies of Labour”, Lewis described poor economies as having two sectors:

A traditional sector, mostly subsistence farming, with many more workers than are really needed. Economists call this surplus labour: some workers could leave without farm output falling much.
A modern sector, such as factories and mines, where workers are more productive and profits are reinvested.

How development happens

In Lewis’s model, the modern sector can hire workers from the traditional sector at a wage only slightly above what they earned on farms. Because labour is plentiful, wages stay low while profits are high. Those profits are reinvested, the modern sector expands, and more workers move from farms to factories. The economy grows as labour shifts to more productive work.

Eventually, the surplus labour runs out. Employers must then compete for workers, and wages begin to rise quickly. This point is known as the Lewis turning point.

China's factory workforce

From the 1980s, hundreds of millions of Chinese workers moved from rural farms to factories in coastal cities. For years, wages stayed low because rural labour seemed almost unlimited. By the late 2000s, factories began reporting labour shortages and wages rose rapidly. Many economists debated whether China had reached its Lewis turning point.

Legacy

Lewis’s model remains a starting point for understanding structural change in developing economies, including India, where many workers remain in low-productivity farming. He also advised governments in Africa and the Caribbean and served as the first president of the Caribbean Development Bank.

Thinking development simply means building factories

Lewis's model shows growth comes from moving workers into more productive work and reinvesting profits. Factories that do not absorb surplus labour, or profits that are not reinvested, may produce little development.

Key takeaways

W. Arthur Lewis, born in Saint Lucia, won the Nobel prize in 1979.
His dual economy model has a traditional sector with surplus labour and a modern sector.
Development happens as workers move to the modern sector and profits are reinvested.
The Lewis turning point comes when surplus labour runs out and wages rise.