4.8 Measuring development questions for IB Economics

In the 21st century, economists have paid growing attention to the links between the economy, society and the natural environment.

Read the extract and answer the question that follows.

Text A — Hallorna's migrant-led growth

[1] Hallorna is a small, high-income economy in the Middle East. Over the past 15 years, its population has doubled as hundreds of thousands of workers have arrived from abroad to work in construction, hospitality, domestic service and healthcare. Migrant workers now make up 70 % of the labour force. Real GDP has grown by an average of 5 % a year, and the government has built new airports, hospitals and a metro system.

[2] Real GDP per capita, however, has barely changed, because population has grown almost as fast as output. Most migrant workers earn low wages, live in crowded accommodation and send a large share of their earnings home. Citizens, most of whom work in the public sector, enjoy high incomes and free healthcare and education.

[3] Rapid construction has increased traffic congestion and air pollution, and per-person water and electricity use is among the highest in the world, much of it from desalination plants powered by natural gas. The government has announced plans to diversify the economy and to invest in solar power.

Using information from the text and your knowledge of economics, discuss the consequences of Hallorna's economic growth for the living standards of people living in the country.

Rural poverty in Sarunda

Sarunda is a low-income, landlocked economy in the Sahel region of West Africa. Most of its people live in rural areas, where households grow millet and sorghum for their own consumption and keep goats and cattle. Rainfall has become less reliable, and droughts in 2021 and 2023 destroyed much of the harvest.

Table 1 shows data on poverty in Sarunda's rural and urban areas.

Table 1: Population and poverty in Sarunda, 2024

National income accounting allows governments to measure the level of economic activity in an economy.

Read the extracts and answer the questions that follow.

Text A — Overview of Marenvia

[1] Marenvia is a lower-middle-income country in Central America with a population of 7.2 million. Agriculture provides 22 % of gross domestic product (GDP) and 41 % of employment. Its main exports are coffee, bananas and fresh vegetables.

[2] About one in six Marenvian workers lives abroad, mostly in North America. Remittances sent home by these workers rose from 11 % of GDP in 2018 to 14 % in 2024. They are spent mainly on consumer goods, housing and school fees.

[3] Coffee earns about 30 % of export revenue. World coffee prices are volatile: a fall in prices in 2019 was followed by a weakening of the varo (MVR), Marenvia's currency, which floats freely.

[4] Development indicators have improved (Table 1), but poverty remains high in rural areas, where many households live more than 10 km from a health clinic.

[5] Inflation has remained low, at around 3–4 % a year, and the central bank has kept its base interest rate stable. However, the government's tax revenue is only about 14 % of GDP, among the lowest in the region, which limits its ability to spend on infrastructure, education and health. Around 60 % of workers are employed in the informal economy.

Table 1: Development data for Marenvia

Text B — Fertilizer subsidies and Lake Ilona

[1] In 2016 the government began paying half of the price of nitrogen fertilizer bought by farmers, in order to raise crop yields and improve food security. Fertilizer use has risen sharply (Table 2), and maize yields have increased by 28 %.

[2] Much of the extra fertilizer is washed by rain into the rivers that flow into Lake Ilona, the country's largest lake. The nutrients cause algae to grow rapidly, reducing the oxygen in the water. Fish catches from the lake have fallen by a third, the cost of treating drinking water for the capital has risen, and tourist visits to lakeside towns have declined.

[3] The fertilizer subsidy cost MVR 830 million in 2024, more than the government spent on rural health clinics. Economists at the national university argue that the subsidy should be replaced by an indirect tax on nitrogen fertilizer, with the revenue used to pay farmers who plant grass strips along rivers to absorb run-off. Farmers' unions warn that this would reduce yields and raise food prices.

[4] Most of Marenvia's farmers are smallholders with less than two hectares of land, and many cannot afford fertilizer without the subsidy. Agronomists note that much of the subsidized fertilizer is applied at the wrong time or in excessive quantities, because farmers receive little advice on how to use it. A training programme for farmers in one district cut fertilizer use per hectare by 20 % without reducing yields.

Table 2: Nitrogen fertilizer use in Marenvia (thousand tonnes)

Text C — Health clinics for rural Marenvia

[1] In 2022 the government began building free primary health clinics in rural districts, funded partly by a loan from a multilateral development bank. Each clinic provides vaccinations, care for mothers and babies, and treatment for common illnesses.

[2] In districts with a new clinic, the share of children fully vaccinated rose from 68 % to 87 %, and the number of school days missed through illness fell. However, the clinics have struggled to recruit doctors and nurses, many of whom prefer to work in the capital or abroad.

[3] The government plans to double the number of clinics by 2028 and to offer higher salaries and housing to staff who agree to work in rural areas for at least five years. The Ministry of Finance has warned that this will be difficult to afford unless other spending is cut or taxes are raised.

Cotton exports from Sandovia

Sandovia is a lower-middle-income economy in Central Asia. Cotton is its largest export and is grown by around 400 000 farming households. Sandovia exports most of its cotton unprocessed, and the rest is bought by domestic textile mills. Sandovia is a small exporter and cannot influence the world price of cotton, which is US$1.80 per kg.

In 2025 the government introduced an export subsidy of US$0.20 for every kg of cotton exported. Since farmers can now earn US$2.00 per kg by exporting, the price of cotton in Sandovia has also risen to US$2.00 per kg. Table 1 shows the effects.

Table 1: The cotton market in Sandovia (thousand tonnes per year)