The Lewis Model

Describe carefully the Lewis dualistic labour surplus model. Does the Lewis model describe accurately the process of economic development in poor countries?

The Model

The Lewis model proposes a dualistic economy consisting of a formal, industrial and urban sector, and an informal, agricultural and rural sector. The formal sector is characterised as capital intensive and being run by profit-maximising capitalists who hire labour until the wage rate equals the marginal product of labour. This is because it makes economic sense for a firm to continue to hire labour until the costs (wage) equal the benefits (the marginal product of the additional unit of labour). [...]

Expansionary Fiscal Contraction Hypothesis

Expansionary fiscal contraction can occur under certain assumptions whereby a major reduction in G changes future expectations about taxes and G which leads to an increase in C causing higher GDP if the rise in consumption exceeds the fall in G. This can only happen if government expenditure as a percentage of GDP is reduced significantly to lessen crowding out and allow the private sector to expand. We need to assume that the economy is at full employment for fiscal contraction to be expansionary.

There are three mechanisms for why this may occur: the belief of Ricardian Equivalence, crowding out theory or market sentiments. [...]

Why have unions declined over the last 30 years?

Account for the collapse of private sector trade unions in industrialised economies since the 1980s. Why has the experience of public sectors been different?

In the 1980s 54.5% of employees were trade union members but by 2000 this number was below 30%. This decline in unions can be seen through a variety of measures; in 1980 64% of all workplaces recognised at least one union, this dropped to 42% by 1998; in 1984 some 70% of employees were with a workplace which conducted some form of collective bargaining, by 2004 this figure was at 39%. Many factors have been proposed for this decline of trade unions in the private sector and to a limited extent in the public sector. [...]

Bourgeoisie Capitalism

Deidre McCloskey, the eminent economic historian whom some of you may know as Donald, before her illustrious transition in the 1990s, recently gave a talk to the Legatum Institute on her ideas of Bourgeoisie Capitalism.

When asked to summarise her thesis into a few words, she said “let people have a go”. She believes that economic growth doesn’t stem from institutions or capital accumulation – although these may be necessary – but the real reason arises from market power embetterment: if people believe that hard work can improve their situation then they will do so. This counters the Weber theory: that protestant virtue of savings and hard work allowed for a pool of investable money to expand the capital stock, along with a pool of hard workers and entrepreneurs which created unparalleled economic growth. [...]

Life at Cambridge Part II

This is a long overdue follow on from my previous post Life at Cambridge, and details my experience of the Cambridge Economics Tripos for 1st year Lent and Easter terms.
The Course

Lent

Microeconomics

This term we began by looking at Game Theory, where we cover the basics such as Nash Equilibrium, before moving on to more sophisticated games, looking at 3×3 matrices as well as 2×2. Simultaneous games are considered, along with Cournot and Bertrand games and models of business strategy and the notion of game theory is applied to matters such as externalities and public goods. There are also references to evaluation, such as how game theory isn’t the best model of real-life situations; for example in a finite game, theory tells us that if it pays to cheat in the last round (i.e. [...]

New Labour v.s. Old Labour

New Labour was forced by political circumstances to adopt neo-liberalism and the Conservative European, Foreign and Defence policies, and so abandoned traditional Labour party ideology. Discuss.

New Labour began government with a promise not to increase spending above Conservative plans for the first two years of their government along with no increases in basic or high income tax. The government was strongly pro-Europe and wanted Britain to play an active role in the policy making decisions of the EU along with a future promise to join the monetary union. Foreign policy took on an ethical role with the government promoting human rights and intervening to stop abuses. [...]

Was there an agricultural revolution?

‘Agriculture played a fundamental role in British industrialisation.’

  • Explain the main ways in which agriculture can theoretically influence industrialisation. Word Count = 498

Agriculture can influence industrialisation through the generation or release of capital, the release of labour, acting as a market for industrial goods or through increased output.

Perhaps the most fundamental way that agriculture affects industrialisation is by providing output (foodstuffs and raw materials) which sustain an industrial urban population. If the urban population is growing quickly then the agricultural industry would need to increase output to feed these workers, this could work by the price of foodstuffs rising which would encourage more investment in farms and a strive to increase productivity. [...]

The Twin Deficit Hypothesis

Simply put the twin deficit hypothesis is the view that an economy running a fiscal budget deficit will also run a current account deficit. It stems from a national accounting equation which says that NX = S-I. We arrive at this point because Classical economists take S = Y-C-G, so we can arrange our national accounting equation of Y = C + I + G + NX to get the above NX = S – I. Where Y is national output (i.e. GDP), S is savings, C is consumption, I is investment, G is government spending and NX is net exports (exports minus imports). [...]

Demography and the Industrial Revolution

What were the causes of the distinctive characteristics of English fertility behaviour during the Industrial Revolution? (b) How did the fertility rate interact with economic growth during this period?

demographyBefore the causes of fertility behaviour are explored, we need to first look at what these characteristics were in the first place. From the graph to the left1 we can see that the crude birth rate (which is defined as the number of live births per 1000 people) starts off at about 30 births per 1000 people in 1680 but increases to about 44 births per 1000 by 1820. This is a significant increase, especially as Malthus believed that the maximum biological rate of fertility can only be about 50 per 1000 people – so the fertility rate was approaching the maximum in 1820. [...]