INTRODUCTION
Economic Development
What Do We Mean by Development?
Traditional Economic Measures
▪ GDP
▪ income per capita
GDP per capita leaves out the distribution of income.
GDP does not account for externalities.
GDP reflects well-being only at a given point in time.
▪ “Trickle Down” has failed to occur!
Trickle-down economics is the idea that benefits given to the rich and big
businesses (like tax cuts, subsidies, or deregulation) will eventually “trickle
down” to the poor through:
▪ Increased investment
▪ Job creation
▪ Higher income and spending
Claim: “If the rich get richer, everyone will eventually benefit.”
❖ In practice, trickle-down has often not worked - specially in countries
like India and many parts of the Global South.
❖ The theory that wealth will trickle down has become a myth.
In reality, it often trickles up.
Many economists (including Joseph Stiglitz and Amartya Sen)
argue that equity and public investment, not trickle-down, are key
to sustainable development.
❖ New View of Development
❖ During the 1970s, economic development came to be redefined in terms of “Redistribution
with Growth”.
“The question to ask about a country’s development are therefore: what has been
happening to poverty? What has been happening to unemployment? What has been
happening to inequality? If all three of them have declined from high levels, then
beyond doubt there has been a period of development for the country concerned. If
one or two of these central problems have been growing worse, especially if all three
have, it would be strange to call the result “development” even if per capita income
doubled” : Dudley Seers
WHAT DO YOU UNDERSTAND BY DEVELOPMENT?
“The challenge of development…is to improve the quality of life. Especially in the
world’s poor countries, a better quality of life generally calls for higher incomes– but it
involves much more. It encompasses as ends in themselves better education, higher
standards of health and nutrition, less poverty, a cleaner environment, more equality of
opportunity, greater individual freedom, and a richer cultural life”
: World Development Report, 1991
AMARTYA SEN
Development as Freedom (1999)
▪ Redefines the concept of development by placing human freedom at its core - Development is
the process of expanding the real freedoms that people enjoy.
Amartya Sen’s Capability Approach
▪ Amartya Sen, the 1998 Nobel laureate in economics, argues that the “capability to function”
is what really matters for status as a poor or non poor person.
▪ As Sen put it, “Economic growth cannot be sensibly treated as an end in itself. Development
has to be more concerned with enhancing the lives we lead and the freedoms we enjoy.
▪ What matters fundamentally is not the things a person has—or the feelings these provide—
but what a person is, or can be, and does, or can do.
Types of Freedoms Sen Identifies:
1. Political Freedoms– Free speech, elections, public debate, democratic participation.
Example: Right to vote, freedom of expression.
2. Economic Facilities– Opportunities to use economic resources, access to jobs, markets, credit.
Example: Access to microcredit or employment opportunities.
3. Social Opportunities– Education, health care, and other services that allow individuals to live
with dignity.
Example: Free primary education, public hospitals.
4. Transparency Guarantees– Openness, trust, and absence of corruption.
Example: Right to information, accountable governance.
5. Protective Security– Social safety nets to prevent poverty or disaster.
Example: Public distribution system (PDS), MGNREGA in India.
▪ Interconnectedness of Freedoms
These freedoms reinforce one another.
For example, education (social opportunity) enhances employment chances (economic
facility), which allows political participation.
Wanna ride a bicycle?
Functioning Capability Utility
Mobility to cycle Satisfaction
The Capability Approach asks not just:
“What do people have?”
but also:
“What can people do with what they have?”
Why is this important in development policy?
It helps policymakers realize:
Giving people the same resources is not enough (equality of means ≠ equality of
opportunity)
We must address individual, social, and structural barriers that limit people’s
capabilities
The bicycle is not development itself.
The capability to use the bicycle — to go to school, work, or hospital — is
development.
Three objectives of development
1. Basic Needs for a Decent Life
Goal: Make sure everyone has the things they need to survive and live with dignity.
2. Better Quality of Life
Goal: Improve how people live — not just in terms of money, but also jobs, education, and
respect for cultural values.
3. More Freedom and Choices
Goal: Give people the freedom to make their own life decisions and break free from
poverty, ignorance, and dependence.
