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Question 21M.2.HL.TZ0.4d

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Date May 2021 Marks available [Maximum mark: 8] Reference code 21M.2.HL.TZ0.4d
Level HL Paper 2 Time zone TZ0
Command term Contrast Question number d Adapted from N/A
d.
[Maximum mark: 8]
21M.2.HL.TZ0.4d

Economic development in Honduras and Guatemala

Honduras

  1. Honduras is a developing country in Central America. While historically dependent on the export of primary products, Honduras has more recently diversified its exports to include clothing and automobile components. Honduras’ economy depends heavily on exports to the United States (US) and, to a lesser extent, on remittances (money sent by a foreign worker to their home country).

  2. In rural areas, approximately one out of five Hondurans lives in absolute poverty. The country is also vulnerable to external shocks and has experienced worsening terms of trade. Revenue earned by the agricultural sector has decreased by one-third over the past two decades. This is partially due to the declining prices of the country’s export crops, especially bananas and coffee beans.

  3. The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) has helped attract foreign direct investment (FDI). However, a threat to future FDI inflows is Honduras’ high level of crime and violence. It has one of the highest murder rates in the world.

    Guatemala

  4. Guatemala shares a border with Honduras. Guatemala has the largest population and the biggest economy in Central America. Guatemala is the top remittance recipient in Central America as a result of large numbers of Guatemalans living and working in the US. These inflows on the current account are equivalent to two-thirds of the country’s export revenue and about 10 % of its gross domestic product (GDP).

  5. The agricultural sector employs 31 % of Guatemala’s labour force. Key agricultural exports include sugar, coffee, bananas and vegetables. The CAFTA-DR has reduced the barriers to FDI, resulting in increased investment and diversification of exports, particularly in iron, steel and non-traditional agricultural exports (such as high-priced fruits and vegetables). While the free trade agreement has improved the conditions for investment, FDI continues to be limited by concerns over security, the lack of skilled workers and poor infrastructure.

  6. With some of the worst poverty, malnutrition and infant mortality rates in the region, Guatemala’s economic development is slowing. Those worst affected live in rural areas. Faster economic growth is crucial to achieving the country’s medium- and long-term poverty reduction objectives.

Table 2: Selected economic data for Honduras and Guatemala

[Source: Central Intelligence Agency, 2018. The World Factbook. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/gt.html [accessed 1 November 2018]. Source adapted.

United Nations Human Development Reports, Guatamala (http://hdr.undp.org/en/countries/profiles/GTM) and Honduras (http://hdr.undp.org/en/countries/profiles/HND). Licenced under Creative Commons 3.0 IGO, https://creativecommons.org/licenses/by/3.0/igo/legalcode.]

(d)

Using information from the text/data and your knowledge of economics, contrast the potential for economic development in Guatemala and Honduras.

[8]

Markscheme

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.

“Contrast” requires candidates to give an account of the differences between two (or more) items or situations, referring to both (all) of them throughout.

Economic analysis may include:

  • poverty cycle
  • Lorenz curve / Gini
  • primary products PED YED
  • terms of trade
  • FDI
  • growth.

Responses may include:

  • a definition of economic development
  • a comparison of the HDI ranking, noting that Guatemala’s ranking is marginally better than Honduras’ (Table 2)
  • GNI per capita is notably higher in Guatemala, but education and health indices are similar for both countries (Table 2)
  • the difference in GNI per capita may be exaggerated for Guatemala as it seems to be more dependent on inflows of remittances which would inflate GNI (paragraph [4])
  • Honduras’ better access to sanitation (Table 2) may contribute to higher economic development and may result in a similar life expectancy despite its significantly lower GNI per capita
  • Honduras’ larger expenditure on education and health care as a percentage of GDP may contribute to higher economic development (Table 2)
  • in the long run, greater expenditure on health care and education may result in a healthier and more productive work force, contributing to greater economic growth and development
  • Honduras collects more tax revenue (as a percentage of GDP), which may explain its capacity to spend more on merit goods (as a percentage of GDP) (Table 2)
  • PPC curve or LRAS curve to show effect of improvement in quality of labour for Honduras
  • Honduras’ lower Gini coefficient suggests a more equal distribution of income (Table 2) even though Honduras’ GNI per capita income is lower than Guatemala, income is more equally distributed
  • Guatemala probably has more people living in absolute poverty, particularly in rural areas (paragraph [6])
  • while Guatemala has a larger population and economy (paragraph [4]), it may be over-reliant on remittances and agricultural exports as a source of economic growth (paragraph [4] and [5]) when compared to Honduras (paragraph [1])
  • it takes less time in Honduras to start a business, which encourages entrepreneurship and increases SRAS (Table 2)
  • Honduras’ economy is becoming more diversified (paragraph [1]), meaning that it may be more able than Guatemala to withstand global fluctuations in commodity prices in the future
  • concerns about poor security in both countries that may discourage FDI
  • poor infrastructure in Guatemala (paragraph [5]) may discourage FDI which is needed to diversify the economy and increase economic growth
  • use of data to make predictions of future economic development.

Any reasonable evaluation.

Examiners report

Again, the development question was poorly answered. 

  • many responses tended to be generic, giving a list of differences rather than contrasting the potential for economic development in the context of Guatemala and Honduras
  • too descriptive and lacking depth of analysis
  • there was minimal application to economic development and as with question 3(d) approached the question in terms of economic growth with minimal reference to development. 

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