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Barriers to Economic Growth and/or Economic Development · Paper 2 — Free Economics HL Practice Questions

1MasteryLAQFactors inhibiting economic development10 marksPaper 2~15 min

The Republic of Santorini is a small island nation in the Mediterranean Sea. It has a Human Development Index (HDI) of

0.620

, a Gini coefficient of

0.58

, and an adult literacy rate of

72\%

. The economy relies heavily on tourism and the export of a single crop, olives. A recent World Bank report identified that

40\%

of the population lives in rural areas with limited access to electricity, clean water, and paved roads. The government allocates

12\%

of its budget to education,

4\%

to healthcare, and

25\%

to military expenditure. Santorini has an external debt-to-GDP ratio of

85\%

and experiences frequent political instability due to contested elections.

(a)

Using the data provided, explain how one internal barrier is inhibiting economic development in Santorini. [2 marks]

(b)

Using the data provided, explain how a different internal barrier is inhibiting economic development in Santorini, and compare its severity to the barrier identified in part (a). [4 marks]

(c)

Discuss the view that improving access to education and healthcare would be more effective than reducing political instability in promoting long-term economic development in Santorini. [4 marks]

Solutions

2MasteryLAQStructural challenges in developing economies10 marksPaper 2~15 min

The West African nation of Kourouma has experienced steady GDP growth of

4.5\%

per year over the last decade, yet its Human Development Index (HDI) value has barely changed, remaining at

0.42

. The country has a high Gini coefficient of

0.58

. A recent World Bank report identified three critical structural challenges: - Infrastructure Deficiency: Only

30\%

of rural roads are paved. Power outages occur daily in major cities, forcing firms to rely on expensive diesel generators. - Educational Shortcomings: The adult literacy rate is

55\%

. Net primary school enrolment is

78\%

, but only

35\%

of students complete secondary school. The curriculum is not aligned with labour market needs. - Institutional Weaknesses: Property rights are poorly enforced. Corruption is widespread, with a Corruption Perceptions Index (CPI) score of

28/100

. Starting a business requires

45

days of bureaucratic procedures. The government of Kourouma is considering two policy options: - Option A: A large-scale loan from the International Development Association (IDA) to build a national highway network and a reliable power grid. - Option B: A conditional cash transfer (CCT) programme that pays poor families USD 50 per month for each child who attends school regularly.

(a)

Using economic theory, explain how two of the structural challenges described in the data could create a cycle of low economic development in Kourouma. [4 marks]

(b)

With reference to the specific data provided, evaluate the potential of either Option A or Option B to break this cycle of low economic development. In your answer, discuss at least one strength and one limitation of your chosen option, and justify whether it is sufficient on its own to raise Kourouma's HDI. [6 marks]

Solutions

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