46: A Synthesis of the Lewis Development Model and Neoclassical Trade Models
Author(s):
Gordon D. Menzies, Economics Discipline Group, UTS Business School, University of Technology, Sydney
Date of publication: June 2018
Working paper number: 46
Abstract: A simpli ed Lewis model with evidence-based assumptions treats all rural
output as nontraded, and pays rural workers a convex combination of their
average and marginal products. Lewis style transition is characterized as
an increase in the weight on marginal product in the determination of the
rural wage. This integration with standard trade models underscores the
importance of trade for development, and predicts a real exchange rate
appreciation for economies undergoing a Lewis style transition.
