Worked example 1
Country C (MIC): GDP per capita $8 000, Gini 0.48, 45% employment in services, 35% in manufacturing, 20% in agriculture. Country D (HIC): GDP per capita $42 000, Gini 0.32, 78% services, 19% manufacturing, 3% agriculture.
Compare their characteristics and explain what structural change Country C would need to reach HIC status. [10 marks]
Show solution outline
Comparison:
| Indicator | Country C (MIC) | Country D (HIC) |
|---|---|---|
| GDP per capita | $8 000 - middle income | $42 000 — high income |
| --- | --- | --- |
| Gini | 0.48 — more unequal | 0.32 — more equal |
| Primary sector | 20% — still significant | 3% — minimal |
| Secondary | 35% — industrial base | 19% — high-value manufacturing |
| Tertiary | 45% — growing | 78% — dominant |
MIC features of C: Dual economy — substantial agriculture (20%) alongside manufacturing (35%). Higher inequality (Gini 0.48) may limit human capital investment for poorest. Services not yet dominant.
HIC features of D: Service-dominated (78%) — finance, tech, healthcare. Low agriculture share. Lower inequality supports social cohesion and demand.
Structural change needed for C:
- Shift labour from agriculture to higher-productivity services — not just manufacturing (avoid middle-income trap).
- Upgrade manufacturing to high-value added (technology, engineering) before wages erode cost advantage.
- Reduce inequality — education access, progressive tax — Gini 0.48 may constrain domestic demand and social stability.
- Invest in human capital and institutions — raises productivity per worker (LRAS shift).
- Manage urbanisation — MICs often face rapid city growth, informal sector expansion.
Judgement: C must move beyond labour-intensive manufacturing toward knowledge-intensive services while addressing inequality — simple GDP growth insufficient without structural transformation.