Economic Argument

Name of the Student

Name of the Institution

Claim

This paper argues that the Lewis model fits better than the Harris-Todaro Model in the explanation of the pattern of development experienced by Venezuela.

Reason

The Lewis model predicts that in a developing economy, workers move from the agricultural sector to manufacturing sector, leading to an increase in the average income and urbanization, and reduction in inequality and poverty (Misra & Puri, 2010). On the other hand, the Harris-Todaro Model predicts that workers move from the rural to the urban areas, expected income in the urban areas reduces, and the wages in the agricultural sector increase. The equilibrium is reached where the expected wages in the rural and urban areas are equal. Eventually, unemployment in the urban areas increases, and employment in the urban informal sector increases (Lall & Selod, 2006).

Evidence

Economic development in Venezuela between 1989 and 2010 followed the predictions of the Lewis model. As expressed in table 2 in the appendix, income per capita increased from US$2,382 in 1989 to US$13,559 in 2010. The Gini index reduced from 43.8 percent to 39 percent over the same period. Within the same period, the number of people living in the urban areas increased from 84 percent to 93 percent (World Bank, 2014).

Acknowledgement

The Lewis model is based on the assumption that excess, unproductive labor in the agricultural sector moves to the manufacturing sector where there are higher wages than in the agricultural sector (Misra & Puri, 2010).

Response

The assumption of the Lewis model may not always hold. When this happens, empirical results derived in studies may be opposite of expectations (Misra & Puri, 2010). A good example is the increase in poverty levels in Venezuela from 31.3 to 32.5 between 1989 and 2010, as indicated in table 2 in the appendix.

References

Lall, ‎S. V. & Selod, H. (2006). Rural-urban Migration in Developing Countries: A Survey of

Theoretical Predictions and Empirical Findings. Washington DC: World Bank Publications

Misra, S. K. & Puri, V. K. (2010). Economics Of Development And Planning — Theory And

Practice (12th edition ed.). Mumbai: Himalaya Publishing House.

World Bank (2014). World Development Indicators. Retrieved from

HYPERLINK “http://data.worldbank.org/country/venezuela-rb” http://data.worldbank.org/country/venezuela-rb

Appendix

Predictions of the Lewis and Harris-Todaro Model models

Predictions of the Lewis Model Predictions of the Harris-Todaro Model

More people move from agricultural sector to manufacturing sector

The aggregate income increases Income

Income inequality reduces in urban and rural

Poverty level reduces

Urbanization increases

More people move from rural to urban

Expected income in the urban areas reduces

Wages in the agricultural sector increase

Equilibrium is reached

Unemployment rate in the urban areas increases

Employment in the urban informal sector increases

World Bank data on income, inequality and poverty levels and share of urban population in Venezuela

Income Per Capita (US$) Inequality (Gini Index) Poverty Level Share of Urban population

1990 2,382 43.8 31.3 84

2010 13,559 39 32.5 93