| Date | May 2019 | Marks available | 8 | Reference code | 19M.2.HL.TZ0.4 |
| Level | Higher level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Discuss | Question number | 4 | Adapted from | N/A |
Question
The World Bank reports on economic growth in Kenya
- The World Bank’s recent overview of Kenya has given a positive assessment of Kenya’s growth prospects, based on domestic and international factors. The East African nation of Kenya has a population of approximately 46.1 million, which increases by an estimated one million per year. The World Bank projected 5.9 % economic growth in 2016, rising to 6 % in 2017. This positive outlook is based on continued low oil prices, growth in the agricultural sector, expansionary monetary policy and ongoing infrastructure investments.
- The World Bank has identified other key contributing factors to Kenya’s short-term growth. These include an expanding services sector, higher levels of construction, currency stability, low inflation, a growing middle-class and rising incomes, a surge in remittances (money sent by a foreign worker to their home country) and increased public investment in energy and transportation.
- Tourism, information and communications and public administration are among the sectors that have registered the highest growth. Inflation has been at an average of 6.3 %, which is within the Kenyan central bank’s target range.
- The World Bank also predicted that, of 82 countries investigated, Kenya would have the highest long-term growth and that its real gross domestic product (GDP) in 2050 should be seven times larger than it is today. Fast population growth, a modest improvement in the business environment, urbanization and fast-growing neighbouring countries are all contributing factors to the positive prediction.
- While the growing Kenyan economy is creating more jobs now than in the past, these are mainly in the informal services sector and are low productivity jobs. 9 million young people will join the labour market in the next 10 years. Given the scarcity of formal sector jobs, they will continue to find jobs in the informal sector. These jobs are usually in very small businesses, often run from homes.
- The World Bank suggests that there is a need to increase the productivity of jobs in the informal sector. It says that this could be achieved by increasing work-related skills through training schemes, increasing communication and learning between formal and informal firms, and helping small-scale firms to become suppliers for firms in the formal sector. To create more and higher-skilled jobs, it is also essential to reduce the cost of doing business.
- According to the World Bank, Kenya has made significant structural and economic reforms that have contributed to sustained economic growth in the past decade. However, economic growth does not always mean economic development. The main development challenges facing Kenya include poverty, inequality, climate change, low commodity prices and the vulnerability of the economy to internal and external shocks.
[Source: adapted from The World Bank Country Overview, http://www.worldbank.org/en/country/kenya/overview,
7 March 2017; Kenya in 2050, The Economist Intelligence Unit, https://www.eiu.com/public/topical_report.
aspx?campaignid=ForecastingTo2050, 13 July 2017, data reused by permission of The Economist Intelligence Unit; and World
Bank economic updates, Kenya’s Economy Strong in a Challenging Global Environment, http://www.worldbank.org/en/country/
kenya/publication/kenya-economic-update-economy-strong-challenging-global-environment, March 2016.]
Define the term investment indicated in bold in the text (paragraph [2]).
Define the term productivity indicated in bold in the text (paragraph [5]).
Using an AD/AS diagram, explain how expansionary monetary policy might lead to economic growth (paragraph [1]).
Explain the difference between economic growth and economic development (paragraph [7]).
Using information from the text/data and your knowledge of economics, discuss the extent to which continued economic growth may lead to economic development in Kenya.
Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS, the vertical axis may be price level or average price level. The horizontal axis may be real output, real national output, real national income, real Y, or real GDP. A title is not necessary.
Responses may include:
- growth is increase in real GDP
- development is measure of well-being/standard of living/welfare
- GDP single indicator/measures only income (quantitative)
- development is composite (qualitative) / made up of multiple measures such as literacy rates, access to clean water, life expectancy, years of schooling, level of gender equality.
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.
Command term
“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.
Responses may include:
- definition of economic growth
- definition of economic development.
Economic growth and economic development:
- good agricultural performance (paragraph [1]) may increase growth through exports, however dependence on primary products is dangerous because of fluctuating commodity prices (paragraph [7])
- expansionary monetary policy (paragraph [1]) leads to growth but might be difficult to maintain if it causes inflation, however, Kenya is within the central bank’s inflation targets at the moment (paragraph [3])
- infrastructure developments (paragraph [1]), enhanced construction (paragraph [2]) and investment in energy and transportation (paragraph [2]) will all lead to long-term growth, however, there are cost considerations for any developing country
- low inflation (paragraph [2]) enables expansionary policies to continue to be implemented (paragraph [1])
- moderate improvement in the business environment (paragraph [4]) but need to reduce the cost of doing business (paragraph [6])
- low oil prices (paragraph [1]) reduce costs in the economy, thus leading to increased SRAS and growth, however, these may not be sustained and are out of Kenya’s control (external shocks) (paragraph [7])
- currency stability (paragraph [2]) is a factor, but often beyond the control of developing countries (external shocks) (paragraph [7])
- fast-growing neighbouring countries (paragraph [4]) is beyond the control of Kenya (external shocks) (paragraph [7])
- surge in remittances (paragraph [2]) allows increased consumption on necessities and merit goods which support development, but this will be dependent upon continued world economy growth (external shocks) (paragraph [7])
- “a growing middle-class and rising incomes” (paragraph [2]) are signs that economic development is occurring
- PPF to show how economic growth can lead to development (development goods such as merit goods on one axis with PPF increasing)
- Kenya faces development challenges in spite of strong economic growth (inequality, climate change, poverty) that may compromise economic development (paragraph [7]).
Any reasonable discussion.
To reach level 3, students must show awareness of the ways and to what extent (evaluating) economic growth may or may not lead to economic development – making a very clear link between the two (not just an analysis on economic growth or/and economic development). They must present a balanced evaluative approach on how growth might or might not impact on economic development.
Examiners report
This was surprisingly badly answered, often phrased in uneconomic terms eg ''spending money in order to get a profit''.
Again, surprisingly, weak definitions of this important economic term. The best that many candidates could come up with is that involves an increase in efficiency.
This question was well answered overall. Diagrams were generally accurate although a minority of students lost a mark by omitting 'real' when labelling GDP on the horizontal axis. Another limitation on some answers was a failure to explain why AD increased eg explaining the effect of falling interest rates on consumption and/or investment and therefore AD. A small minority failed link the above analysis to economic growth.
Many students lost 1 mark when defining economic growth re: Real GDP by not including 'real'. Also, many students relied on definitions of the terms without making a distinction between the concepts.
Many candidates did not answer this question directly. Some answers were largely generic in nature with minimal reference to the text. Much emphasis was placed on what may cause economic growth and many directed the question to the role of government in generating growth. This was not the question. The extent to which growth will or will not generate development was barely addressed in some cases. The result was that many of the answers were unbalanced at best or irrelevant at worst.
