In Econland, there are two kinds of people.

In the countryside, millions of workers wake up every morning to work on farms. They

till the land, harvest crops, and raise cattle. But here’s the twist — there are too many

people working on the farms. Some of them don’t even have enough land to cultivate.

the Nobel Prize in Economics), entered the story. He looked at developing countries like

Econland and tried to explain one big question:

“How do countries move from being poor and agricultural to being rich and industrial?”

Lewis believed that developing countries have two sectors:

This is the rural part of the economy — full of small farms, family labour, and old

tools. Productivity here is very low, meaning people produce just enough to

traditional sector to the modern sector.

In simple words, it’s like moving people from the farms to the factories.

And when this happens, both the people and the economy benefit.

Let’s follow the journey of Econland using Lewis’s theory.

In the beginning, the rural areas have too many workers.

Let’s say 10 people work on a small piece of land — but even if only 6 worked, the total

food produced wouldn’t really change.

Meanwhile, the urban industrial sector is just starting to grow.

Factory owners need workers — they offer them slightly higher wages than what they

earn in the villages.

For example:

• A farm worker earns just enough food to survive (say ₹100/day worth of food).

• The factory offers ₹120/day in cash wages.

Naturally, some rural workers start moving to the city for better pay.

factories, buying better machines, and expanding production.

industrial sector.

So, industries keep expanding, employing more people, and increasing production.

As more workers move from farms to factories, the economy slowly transforms from an

agricultural to an industrial one.

This process continues for years.

Every year, more and more rural workers migrate to the city.

• Rural wages start rising.

• The gap between agricultural and industrial wages narrows.

• Labour supply becomes limited, not unlimited anymore.

This marks the end of the first stage of economic development.

Let’s summarize Lewis’s model in simple points, so you never forget it:

The country has two sectors — traditional (rural, low productivity) and modern

(urban, high productivity).

Many workers in agriculture contribute little or nothing to output — they can be

Because of unlimited labour supply, industrial wages remain constant for a long

time.

Capitalists reinvest profits to expand industries, not to increase wages

immediately.

Once the surplus labour is fully absorbed:

• Industrial wages increase.

• Workers’ living standards improve.

• Savings and investments rise.

• The economy becomes more modern and self-sustaining.

the country moves closer to being fully industrialized.

Lewis’s model beautifully explained what happened in many developing countries during

the 20th century.

At first, they were mostly agricultural economies with vast rural populations. Over time,

No theory is perfect — and economists have pointed out a few limitations of Lewis’s

Lewis assumed there’s a large pool of surplus labour in agriculture. But in reality,

removing too many workers from farms can reduce food output.

It tells us how a poor, agriculture-based country can slowly transform into a rich,

industrial economy by using its surplus labour effectively. It’s the journey of millions of

workers who left their fields to work in factories, building not just goods but a new

labour, when guided wisely, can lift entire societies out of poverty.

• Combines three dimensions:

• Norway ranks high because of strong education and health systems.

• Developed before HDI.