Question 21M.2.HL.TZ0.c
| Date | May 2021 | Marks available | [Maximum mark: 4] | Reference code | 21M.2.HL.TZ0.c |
| Level | HL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | Adapted from | N/A |
Economic development in Honduras and Guatemala
Honduras
- 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).
- 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.
- 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
- 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).
- 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.
- 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.]
With reference to the data in Table 2, explain why the GNI per capita for Guatemala is lower than its GDP per capita.
[4]
[1] for showing an awareness of the difference between GNI and GDP (by GNI = GDP + Net income abroad OR GNI is income from productive factors owned by residents of the country whereas GDP is income produced in the country).
[1] for an explanation that the GNI per capita in Guatemala at 7278 is lower than the GDP per capita at 8100.
[2] for an explanation that this means that the net income from abroad is negative OR that foreign owners of productive resources in Guatemala are earning more income than owners from Guatemala are earning in foreign countries.
NB Responses that do not refer to the data in Table 2 can be awarded a maximum of [3].
The terms were poorly understood, particularly GNI. Many candidates used the value in the table to correctly state that the GNI was lower then GDP, but some did not correctly explain the difference between the two. Similarly, the "per capita" aspect of the question was often missing. Overall, the majority of students were not able to effectively distinguish between the two concepts.
