The process of economic development has been usually seen as a transformation from the rural agricultural sector to the urban manufacturing sector in developing countries. This process in the dual sectors is driven by labor transfers (migration) and capital accumulation. W. Arthur Lewis in his work on 'Economic development with unlimited supplies of labor' (1954) analyzed the labor market dualism and the structural difference between the subsistence sector and capitalistic sector in developing economies. The two sectors in the Lewis model are referred to as the subsistence and capitalistic sectors, originally and then they were also known as the traditional and modern sectors. Afterwards, the Lewis model was formalized and extended by John Fei and Gus Ranis in 1961 and the combination made up the Lewis Ranis and Fei (LRF) model. The model, which takes to account the context of developing countries, explains a dual economy model of economic development with an assumption that there exists surplus labor in the traditional (agricultural) sector which is to be re-allocated to fill the rising modern (urban) sector labor demands. This means that the loss of labor in the traditional agriculture sector does not reduce agricultural production as a result of migration of labor to the modern sector. .
In the first section of this paper, the authors will provide a detailed explanation of the Arthur Lewis model with the use of graphs and the theory itself. The authors seek to provide a thorough background to the model to enable the reader to better understand the following section. In the latter parts of the first section, the authors will also point out the key arguments and points made by Lewis in his famous theory. The second section of the paper, the authors will analyze the Lewis model and assess its significance and relevance to the economy in the modern era and whether it is applicable in the real world.
