IB Economics HL 4.10 Economic Growth and or Economic Development Strategies Questions

Study the extract and data below and answer the questions that follow.
Nigeria

(1) In August 2016 Nigeria, the largest economy in Africa, went into recession. This was accompanied by rising inflation and growing unemployment.

(2) 80 % to 90 % of Nigeria's export revenue is earned from oil exports. The recent fall in the world price of oil has had a significant impact on export revenues. Therefore, government revenue has fallen by about 30 %. This has prompted economists to argue that Nigeria should not be so dependent on oil and needs to diversify.

(3) Until the end of the 1960s, Nigeria was food self-sufficient and a net exporter of agricultural products. This changed in the early 1970s when the dependence on oil started. Researchers have suggested that Nigeria should start to focus on the production of agricultural goods for export. It has also been suggested that Nigeria should try to promote tourism. Government officials have said that agriculture is the most viable option for Nigeria to create employment for the large number of unemployed young people.

(4) Farmers have asked the government for more protection against foreign agricultural products. The government has already banned several agricultural imports. It also imposed strict currency controls that limit how much foreign currency Nigerians can spend online and how much businesses and individuals can exchange on a daily basis, limiting imports further. The evidence is clear that the government is adopting an import-substitution strategy.

(5) In the state of Osun, the first step towards diversification has been made. The cocoa processing industry has been revived to produce globally competitive chocolates and other cocoa products. The state governor said that it is slowly leading to more employment and higher revenues for firms. However, many firms remain small and are unable to achieve the economies of scale that would make them more competitive.

(6) The government is planning to create jobs in other areas such as the textile industry. 6000 young people will be trained and provided with facilities like sewing machines, fabrics and other equipment to make school uniforms for the growing young population. The president said that youth employment is needed to help eradicate poverty.

(7) One of Nigeria's challenges is the existence of powerful monopolies in some sectors, including the electricity sector. These monopolies refuse to lower prices for businesses and households, creating a welfare loss.

(8) To help the process of diversification, the country urgently needs better private sector regulation to increase healthy competition, reduce monopoly power, remove illegal cartels, lower corruption and encourage technological innovation.
[Sources: adapted from www.vanguardngr.com, accessed 17 August 2016 and www.sciedupress.com, accessed 18 August]

[Sources: adapted from www.tradingeconomics.com, accessed 14 August 2016; http://hdr.undp.org, accessed 14 August 2016; www.cia.gov, accessed 14 August 2016; http://data.worldbank.org, accessed 14 August 2016; http://allafrica.com, accessed 13 August 2016; www.theguardian.com, accessed 13 August 2016; www.theguardian.com, accessed 13 August 2016 and www.proshareng.com, accessed 2 October 2016]

Using information from the text/data and your knowledge of economics, evaluate import-substitution and diversification as a means of achieving economic development in Nigeria.

Study the following extract and answer the questions that follow.
New policies for Brazil

Study the following extract and answer the questions that follow.
New policies for Brazil

(1) From 2010 to 2014, Brazil experienced an economic boom with annual gross domestic product (GDP) growth of 8 %. During this time, the government spent heavily on social programmes (including cash transfers and pensions) that helped millions to get out of the poverty cycle. The poverty rate decreased from 22 % to 9 % and the Gini coefficient dropped from 0.581 to 0.515 . However, the spending on social programmes resulted in fiscal deficits and a large public debt, which is currently 80 % of GDP.

(2) In 2015, Brazil entered a recession that lasted until 2017. During the recession GDP declined by an average of 3 % per year. By 2017, the number of Brazilians living in absolute poverty climbed by 13 %, inequality worsened, and unemployment was 12 %. From late 2017 to 2019, Brazil struggled to recover, with only approximately 1 % annual economic growth.

(3) Some economists blamed the slow recovery on the lack of investment in education and technology during the economic boom. According to those economists, investment in human and physical capital was necessary to improve productivity and decrease the reliance on the production of primary commodities. Historically, spending on education has not been effective in reaching the very poor.

(4) In 2018, a newly elected government, aiming to stimulate economic growth, introduced market-oriented policies. Since Brazil has a large economy, the new government believed that Brazil should take advantage of world trade and foreign investment to boost economic growth and achieve economic development.

(5) The new government aimed to increase the number of multinational corporations (MNCs) investing in Brazil through deregulation and trade liberalization. Furthermore, in 2020 several state-owned enterprises were privatized.

(6) Additionally, new labour market and tax reforms were introduced to create jobs, increase labour force participation and make it easier for firms to hire and fire workers. The reforms included increasing the retirement age and reducing transfer payments. However, trade unions claim that the reforms are unfair and will lead to the exploitation of workers.

(7) There is concern that deregulation, privatization and market liberalization will put pressure on Brazil's environment, threaten sustainable development, and benefit only urban areas. In 2017, the government introduced "green GDP" as an official measure and committed to environmental protection goals. This is necessary because, for example, over 40 % of the population live in areas without access to a sewage system and manufacturing companies are dumping untreated wastewater in rivers, contributing to water pollution.

Explain how education programmes and health programmes can promote economic development.

Study the following extract and answer the questions that follow.
New policies for Brazil

Study the following extract and answer the questions that follow.
New policies for Brazil

(1) From 2010 to 2014, Brazil experienced an economic boom with annual gross domestic product (GDP) growth of 8 %. During this time, the government spent heavily on social programmes (including cash transfers and pensions) that helped millions to get out of the poverty cycle. The poverty rate decreased from 22 % to 9 % and the Gini coefficient dropped from 0.581 to 0.515 . However, the spending on social programmes resulted in fiscal deficits and a large public debt, which is currently 80 % of GDP.

(2) In 2015, Brazil entered a recession that lasted until 2017. During the recession GDP declined by an average of 3 % per year. By 2017, the number of Brazilians living in absolute poverty climbed by 13 %, inequality worsened, and unemployment was 12 %. From late 2017 to 2019, Brazil struggled to recover, with only approximately 1 % annual economic growth.

(3) Some economists blamed the slow recovery on the lack of investment in education and technology during the economic boom. According to those economists, investment in human and physical capital was necessary to improve productivity and decrease the reliance on the production of primary commodities. Historically, spending on education has not been effective in reaching the very poor.

(4) In 2018, a newly elected government, aiming to stimulate economic growth, introduced market-oriented policies. Since Brazil has a large economy, the new government believed that Brazil should take advantage of world trade and foreign investment to boost economic growth and achieve economic development.

(5) The new government aimed to increase the number of multinational corporations (MNCs) investing in Brazil through deregulation and trade liberalization. Furthermore, in 2020 several state-owned enterprises were privatized.

(6) Additionally, new labour market and tax reforms were introduced to create jobs, increase labour force participation and make it easier for firms to hire and fire workers. The reforms included increasing the retirement age and reducing transfer payments. However, trade unions claim that the reforms are unfair and will lead to the exploitation of workers.

(7) There is concern that deregulation, privatization and market liberalization will put pressure on Brazil's environment, threaten sustainable development, and benefit only urban areas. In 2017, the government introduced "green GDP" as an official measure and committed to environmental protection goals. This is necessary because, for example, over 40 % of the population live in areas without access to a sewage system and manufacturing companies are dumping untreated wastewater in rivers, contributing to water pollution.

Using information from the text/data and your knowledge of economics, evaluate the impact of market-oriented policies on economic development in Brazil.

The information in Table 1 refers to Country A (base year: 2011).

Outline one possible disadvantage of foreign direct investment (FDI) for economically less developed countries.

Read the extracts and answer the questions that follow.
Text D - Overview of Indonesia and palm oil production

(1) Indonesia is the largest economy in Southeast Asia and its gross domestic product (GDP) has grown strongly. The proportion of those living in absolute poverty in Indonesia decreased from 37.4 % in 1999 to 2.7% in 2019.

(2) The palm oil industry is a major contributor to the Indonesian economy, accounting for 4.5 % of GDP and providing employment for over three million Indonesians. Palm oil production is technologically simple and profit margins are large. As a low-cost producer, Indonesia produces over 50 % of the world's output. Palm oil is the most widely used vegetable oil in the global market. It is an ingredient in many products (including foods, cosmetics, cleaning products and biofuel) and demand continues to increase.

(3) In 2015, despite a widening budget deficit, the Indonesian government began subsidizing biodiesel (a type of renewable fuel) made from palm oil to make it more price competitive with conventional diesel. The subsidies were aimed at reducing Indonesia's dependence on fossil fuel imports and at increasing exports of high-value refined palm oil products.

(4) In Indonesia, 80% of the palm oil produced is exported, contributing substantially to export revenue and to government tax revenue. However, palm oil prices are volatile, due to changes in supply, making planning difficult and causing fluctuations in the exchange rate. For example, studies show that, due to the low price elasticity of demand (PED) for primary commodities, an increase in the price of palm oil results in greater export revenue. Consequently, the rupiah (Indonesia's currency) may appreciate.

(5) In 2019, the European Union (EU) decided to impose an 18 % tariff on imports of palm oil based biodiesel from Indonesia, partly due to concerns that palm oil production damages the environment. The EU also claimed the tariff was necessary to offset the effects of the biodiesel subsidy.
Text E - Sustainable Development Goal (SDG) 12 and concerns about palm oil production in Indonesia

(1) In the past, the Indonesian government supported the rapid growth of palm oil production in order to increase GDP and employment. This policy often resulted in an inefficient use of land and high carbon emissions, as a result of deforestation.

(2) Sustainable Development Goal (SDG) 12 (responsible consumption and production) requires resources to be used more efficiently and sustainably through changes in production methods. Unsustainable use of Indonesia's natural resources will probably reduce long-term economic growth. Forests are necessary for food security, fuel, shelter and jobs. They also reduce the carbon in the atmosphere and protect against floods.

(3) Rates of deforestation in Indonesia have decreased recently. The World Bank's Forest Carbon Partnership Facility is providing US$110 million in aid to help reduce deforestation. Protecting forests from agricultural expansion will significantly reduce emissions. Profits will be lower, but the reputation of the palm oil industry will be improved and its long-term future made more secure.

(4) More than 50 multinational companies (MNCs) which use palm oil in their products have pledged to ensure that their suppliers do not contribute to deforestation. Pressure from the MNCs is encouraging Indonesian producers to use natural resources more sustainably.
Text F - Small-scale farmers and the Indonesian Sustainable Palm Oil (ISPO) certificate

(1) Small-scale farmers manage approximately 40 % of Indonesian plantations, but produce only 30 % of Indonesia's palm oil, because of poor farming techniques, low quality seeds, and a weak banking system, which limits their access to finance. In addition, land disputes occur due to a lack of property rights. To make up for their low productivity, farmers sometimes illegally clear more land for planting.

(2) The Indonesian Sustainable Palm Oil (ISPO) certification system requires that palm oil producers only occupy land legally, that they do not plant in areas designated as forest, and that they use sustainable agricultural practices. Initially, only large plantations had to get certification. However, the system was extended in 2020 and now small-scale farmers also have to obtain certification. Participating in the system should improve the productivity of small-scale farmers and reduce deforestation.

Define the term property rights indicated in bold in the text (Text F, paragraph 1).

Read the extracts and answer the questions that follow.
Text D - Overview of Malawi

(1) Malawi is a landlocked country in southern Africa. Its development plans contain 169 targets, based on the Sustainable Development Goals. Ineffective institutions and inequalities, however, make it difficult to reach every target. Although poverty in urban areas has declined, the level of absolute poverty has been increasing in rural areas where 85 % of the population lives. Causes of poverty include land degradation ( 80 % of the land is eroded or lacks nutrients), poor healthcare and rapid population growth. There is also a lack of human capital, which is often due to the difficulties that households have in obtaining loans for education or training. Approximately 75 % of households do not have access to formal banking services.

(2) Aid agencies are providing assistance. The World Bank's Human Capital Project will increase investment and encourage reforms, such as promoting the education of teenage girls. In 2020, the World Bank also approved US $\$ 157$ million ( 50 % as a loan and 50 % as a grant) for a government project. This project aims to increase sustainable land management practices and build water-related infrastructure, such as small dams and irrigation schemes.

(3) The government has encouraged the establishment of microfinance groups that act as rural banks. They provide some finance and guidance for programmes that introduce new types of crops and techniques in order to improve agricultural efficiency.

(4) Although 2019 was a difficult year due to drought, insect infestations, and a tropical cyclone, Malawi's real gross domestic product (GDP) grew by 4.5 %. There is a large budget deficit and the amount of government debt (at approximately 60 % of GDP) is considered to be too high. Therefore, the government has announced plans to reduce its spending. Inflation had been forecast to increase to 14 % in 2020. Due to the planned contractionary fiscal policies, however, inflation may fall below 10% from 2021 onwards.

(5) Export revenues account for over 30 % of GDP. Malawi aims to increase its exports of cotton, nuts, tea and sugar. Rising exports and lower fuel import prices could reduce the current account deficit. Despite the persistent trade deficit, Malawi is resisting calls for further trade protection. It has signed bilateral trade agreements with both South Africa and Zimbabwe. Tariffs are gradually being reduced, while other indirect and direct taxes are being raised.
Text E - Agricultural Production

(1) Approximately 80 % of the labour force is employed in agriculture, with few job opportunities available in manufacturing and services. Agricultural productivity is low for many reasons. The government promotes manufacturing industries and cultivation of crops for export by large-scale farms. However, small-scale and subsistence farmers have received little support in the past. Farmers use less fertilizer and irrigation than is typical in other countries. Only 3 % of cultivated land is irrigated, compared to the global average of 21 %. Other challenges are the inadequate road and rail links to markets and the limited availability of electricity and fuel.

(2) Maize is the most important staple food in Malawi. The government uses price controls when trying to ensure that maize is available at affordable prices for low-income households. However, the maximum price set by the government is often too low to persuade farmers to supply the maize or to provide them with sufficient revenue. In 2020 , the maximum price was raised from 250 to 310 kwacha per kilogram. Even at the higher price, shortages remain.

(3) The government is planning to invest in commercial agriculture to improve productivity and promote diversification. The 2020 budget includes subsidies on fertilizer for 4.3 million small-scale farmers, which could possibly double maize output but may also pollute waterways. The support given to farmers will improve the nutrition of Malawians and stimulate the rural economy.
Text F - Tobacco Exports
Tobacco is Malawi's major export, providing over 50 % of foreign currency earnings. Due to lower global demand and the purchasing policies of multinational tobacco firms, prices paid to farmers in Malawi are low and falling. To reduce costs, farmers resort to using child labour. Following allegations of labour exploitation, the United States has restricted tobacco imports from Malawi. There is concern that other importing countries might also impose restrictions.

* 2018 figure

* 2016 figure

Using information from the texts/data and your knowledge of economics, evaluate the government's policies to promote economic growth and economic development in Malawi.