Understanding the Lewis Turning Point in Economics
Exploring the Shift from Agricultural to Non-Agricultural Sectors in Developing Countries and Its Implications for Economic Growth and Development
A recent conversation with ChatGPT regarding the Lewis Turning Point has revealed that labor moving from rural areas into the city is unlocking a huge number of workers, driving up the workforce numbers and bringing down labor costs. This is Tak's thought, and here's the conversation.
Tak: What is Lewis Turning Point in terms of economy?
ChatGPT: The Lewis Turning Point is a concept in development economics that refers to the point at which a country's labor force shifts from predominantly agricultural work to non-agricultural work. The idea was developed by economist Sir Arthur Lewis in the 1950s, based on his research on economic development in developing countries.
According to Lewis, in the early stages of development, a large portion of a country's labor force is typically employed in agriculture, which is characterized by low productivity, low wages, and a surplus labor force. As the economy grows and industrializes, opportunities for higher-paying jobs in manufacturing and other non-agricultural sectors emerge. At some point, the wages in the non-agricultural sector become high enough to attract workers away from agriculture, leading to a labor shortage in agriculture and a shift in the balance of power between workers and employers.
This shift, which Lewis called the "Lewis Turning Point," is a critical moment in a country's economic development, as it marks the beginning of the transformation from a primarily agricultural economy to a more diversified economy with higher wages and greater opportunities for economic growth. However, the Lewis Turning Point also presents challenges, such as the need for investment in infrastructure, education, and training to support the growth of non-agricultural sectors and the need for policies to ensure that the benefits of economic growth are shared equitably across society.
Tak: So what does it shows?
ChatGPT: The Lewis Turning Point shows the transformation of an economy from a predominantly agricultural economy to a more diversified economy with a larger non-agricultural sector. This transformation is characterized by a shift in the balance of power between workers and employers, as workers become scarcer in the agricultural sector and demand higher wages and better working conditions.
The Lewis Turning Point is an important concept in development economics, as it highlights the potential for economic growth and structural transformation in developing countries. However, it also underscores the need for investment in infrastructure, education, and training to support the growth of non-agricultural sectors and ensure that the benefits of economic growth are shared equitably across society. Without such investments, the benefits of economic growth may be concentrated in the hands of a small elite, leading to greater income inequality and social unrest.
Tak: Give me example? what is the most recent example in this theory?
ChatGPT: There are many examples of the Lewis Turning Point occurring throughout history, including in the development of countries such as Japan, South Korea, and China. However, an example of the Lewis Turning Point that has been observed more recently is the transformation of the economy of Ethiopia.
Ethiopia is a country in East Africa that has historically been heavily reliant on agriculture, with more than 80% of the population working in this sector. However, over the past few decades, the country has experienced rapid economic growth and has undergone a significant transformation in its economy, with a shift toward manufacturing and other non-agricultural sectors.
This transformation has been driven by the Ethiopian government's focus on attracting foreign investment and promoting export-oriented manufacturing, as well as investments in infrastructure, education, and training. As a result, the country has seen a significant increase in its manufacturing sector, with industries such as textiles, leather goods, and electronics emerging as important drivers of economic growth.
This shift has led to a Lewis Turning Point in Ethiopia, with a growing number of workers leaving the agricultural sector for higher-paying jobs in the manufacturing sector. While there are challenges associated with this transformation, such as the need for continued investment in infrastructure and education, the Lewis Turning Point presents an opportunity for sustained economic growth and poverty reduction in Ethiopia.
Tak: Who will do agricultural then if everyone goes to manufacturing ?
ChatGPT: The Lewis Turning Point suggests that in the early stages of economic development, a large portion of the labor force is employed in agriculture, and as the economy grows and diversifies, workers gradually shift from agriculture to other sectors, such as manufacturing and services.
In countries experiencing the Lewis Turning Point, the shift from agriculture to other sectors usually occurs gradually over time. This means that even as workers leave agriculture for other sectors, there will still be a significant portion of the labor force remaining in agriculture. Additionally, as wages in other sectors increase, some workers may choose to return to agriculture if they perceive it to be more profitable or rewarding.
It's also worth noting that the transformation of an economy from a predominantly agricultural to a more diversified economy often involves improvements in agricultural productivity, which can lead to increased efficiency and profitability in the sector. For example, advances in agricultural technology, irrigation, and transportation can improve crop yields, reduce waste, and enable farmers to reach new markets.
Overall, the Lewis Turning Point represents a shift in the balance of power between employers and workers, with workers in non-agricultural sectors becoming increasingly scarce and able to demand higher wages and better working conditions. While this transformation presents challenges, such as ensuring that the benefits of economic growth are shared equitably across society, it also represents an opportunity for sustained economic growth and poverty reduction.
End Of Conversation. Thanks for reading.