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Explain what is meant by the Lewis model - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 3
Question 2
Explain what is meant by the Lewis model. Refer to Extract D in your answer. The Lewis model of growth and development illustrates the transition of an economy from... show full transcript
Worked Solution & Example Answer:Explain what is meant by the Lewis model - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 3
Step 1
Explain what is meant by the Lewis model. Refer to Extract D in your answer.
Answer
The Lewis model of growth and development illustrates the transition of an economy from a traditional agricultural base to a more industrialized structure. In the model, surplus labor from the agricultural sector is gradually absorbed into the industrial sector, increasing productivity and economic growth.
In the context of Africa, specifically Kenya, the model suggests that the country has opportunities to develop industries that can drive economic progress. Extract D emphasizes that while the Lewis model provides a useful framework, Africa's current economic landscape features complexities that challenge its straightforward application. Various sectors are expanding, suggesting a need for industries that benefit from both agricultural surplus and a rising labor force.
Thus, the Lewis model indicates that moving labor from low-productivity to high-productivity sectors can enhance growth, but it must be adapted to fit the unique socio-economic conditions of African nations.
Step 2
Examine two demographic factors influencing development in Kenya.
Answer
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Population Growth: The population in Kenya has increased significantly over the decades, evident from the data in Figure 2. As of 2020, the population reached approximately 53.7 million, up from 8.1 million in 1960. This rapid growth puts pressure on resources, education, and employment, which requires strategic planning.
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Age Structure: With a large percentage of the population being young, due to falling birth rates, Kenya faces the challenge of providing adequate education and job opportunities for this demographic. The fact that 39% of the population is under the age of 15 reveals the need for long-term investments in human capital to harness this youth dividend.
Step 3
Using the example of cut flowers (Extract F), discuss how the concept of absolute advantage may lead to growth in Kenya.
Answer
Absolute advantage refers to the ability of a country to produce a good more efficiently than another country. In Kenya's case, the climate and conditions favorable for growing cut flowers allow it to produce high-quality products that are in demand internationally. The country's flower industry contributes significantly to its economy, representing about 1% of GDP. This export-oriented sector creates employment and stimulates local economies, supporting overall economic growth. The establishment of infrastructure for transportation and export can further enhance this industry's growth, leading to greater economic benefits.
Step 4
Evaluate the microeconomic and macroeconomic effects of decreasing interest rates in Kenya, or another developing country of your choice.
Answer
Lowering interest rates can stimulate economic activity by making borrowing cheaper for consumers and businesses. In the short term, this leads to increased consumption and investment, potentially boosting economic growth. On the microeconomic level, individuals may find it easier to finance education, homes, or businesses, thus enhancing personal welfare and entrepreneurial activity.
However, in the long term, persistent low-interest rates can lead to inflationary pressures as demand outstrips supply. On a macroeconomic scale, decreased interest rates can influence currency value and balance of payments, requiring careful management to ensure sustainable economic growth and avoid negative repercussions such as asset bubbles.