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2281 · 5.4

Differences in economic development between countries — practice questions

Practice and worked examples for 2281 Differences in economic development between countries. Short previews only — attempt the full question in MarkScheme against the official scheme.

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]

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Comparison:

IndicatorCountry C (MIC)Country D (HIC)
GDP per capita$8 000 - middle income$42 000 — high income
---------
Gini0.48 — more unequal0.32 — more equal
Primary sector20% — still significant3% — minimal
Secondary35% — industrial base19% — high-value manufacturing
Tertiary45% — growing78% — 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:

  1. Shift labour from agriculture to higher-productivity services — not just manufacturing (avoid middle-income trap).
  2. Upgrade manufacturing to high-value added (technology, engineering) before wages erode cost advantage.
  3. Reduce inequality — education access, progressive tax — Gini 0.48 may constrain domestic demand and social stability.
  4. Invest in human capital and institutions — raises productivity per worker (LRAS shift).
  5. 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.

Worked example 2

A country has a life expectancy of 75 years, mean years of schooling of 12 years, expected years of schooling of 14 years, and a GNI per capita of $20,000. Using the simplified dimension index formula: Index=(ActualValueMinimumValue)/(MaximumValueMinimumValue)Index = (Actual Value - Minimum Value) / (Maximum Value - Minimum Value), calculate the country's Human Development Index (HDI). Use the following goalposts: Life Expectancy (Min: 20, Max: 85), Mean Schooling (Min: 0, Max: 15), Expected Schooling (Min: 0, Max: 18), GNI per capita (Min: $100, Max: $75,000 - use natural log for calculation).

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Step 1: Calculate the Health Index (Life Expectancy)

  • Formula: (Actual - Min) / (Max - Min)
  • Calculation: (7520)/(8520)=55/65(75 - 20) / (85 - 20) = 55 / 65
  • Health Index = 0.846

Step 2: Calculate the Education Index

  • First, calculate the Mean Years of Schooling Index: (120)/(150)=0.800(12 - 0) / (15 - 0) = 0.800
  • Second, calculate the Expected Years of Schooling Index: (140)/(180)=0.778(14 - 0) / (18 - 0) = 0.778
  • The Education Index is the average of the two: (0.800 + 0.778) / 2
  • Education Index = 0.789

Step 3: Calculate the Income Index (GNI)

  • This index uses the natural logarithm (ln) to reflect the diminishing importance of income with increasing GNI.
  • Formula: (ln(Actual GNI) - ln(Min GNI)) / (ln(Max GNI) - ln(Min GNI))
  • Calculation: (ln(20000) - ln(100)) / (ln(75000) - ln(100))
  • ln(20000) ≈ 9.903, ln(100) ≈ 4.605, ln(75000) ≈ 11.225
  • Index = (9.9034.605)/(11.2254.605)=5.298/6.620(9.903 - 4.605) / (11.225 - 4.605) = 5.298 / 6.620
  • Income Index = 0.800

Step 4: Calculate the final HDI

  • The HDI is the geometric mean of the three dimension indices.
  • Formula: (HealthIndex×EducationIndex×IncomeIndex)(1/3)(Health Index \times Education Index \times Income Index)^(1/3)
  • Calculation: (0.846×0.789×0.800)(1/3)=(0.534)(1/3)(0.846 \times 0.789 \times 0.800)^(1/3) = (0.534)^(1/3)
  • Final HDI = 0.811

Conclusion: The country's HDI is 0.811. This value falls into the 'Very High' human development category (typically HDI > 0.800), indicating a high standard of living, health, and education, characteristic of a high-income or upper-middle-income country.