| Date | November 2019 | Marks available | 4 | Reference code | 19N.2.HL.TZ0.4 |
| Level | Higher level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 4 | Adapted from | N/A |
Question
Economic growth in Cambodia
- Economic growth in Cambodia Cambodia has become one of the fastest growing economies in Asia and has now been classified as an upper middle-income country, according to the World Bank.
- Export promotion has helped Cambodia to grow. It has used low-cost labour to manufacture products for export. This has been helped by the fact that the price of labour has increased in China and other Asian countries. Cambodia’s large supply of inexpensive, low-skilled labour has attracted much foreign direct investment (FDI) into the production of garments and footwear for export and contributed to its economic growth. Last year, there was a 10.2 % increase in the export of garments and footwear in Cambodia, which makes up 70 % of its exports.
- Throughout Asia, hundreds of millions of people have been lifted out of poverty through manufacturing jobs that allowed them to better educate their children, who could then have a better life.
- However, Cambodia’s manufacturing competitiveness is being challenged by other countries in the region, particularly those that manufacture low-cost clothing. A recent increase in the minimum wage may also pose problems. Industry representatives have raised concerns that the garment industry may lose investors, who may leave to find cheaper places, if the minimum wage continues to increase.
- Cambodia needs to further diversify its economy if it hopes to maintain the high growth rates it has achieved in recent years. To support diversification, the government has launched an industrial development policy aimed at upgrading industry from low-cost, labour-intensive manufacturing to production with higher value added. The policy encourages the expansion and modernization of small and medium-sized enterprises, stronger regulations and enforcement, and a better environment for doing business.
- There remain many challenges to deal with. One of them is growing inequality—there is income inequality between urban and rural areas—as well as gender inequality. Women continue to face disadvantages in gaining access to higher education, well-paid employment opportunities and decision-making roles in government.
- Approximately 30 000 young Cambodians enter the labour force each year but often do not have the required skills to meet the needs of the labour market. While a large proportion of the labour force is employed, many jobs are informal, vulnerable, unstable and poorly paid. There is a critical need to address problems in education and training and to help children complete school. While 98 % of children attend primary school in Cambodia, many drop out later due to a lack of funds. Only 30 % of young people complete high school.
- The rapid economic and population growth in Cambodia is leading to significant environmental pollution. Environmentalists have identified garment factories as being one of the four main industrial activities that significantly contribute to air and water pollution.
[Source: adapted from Here Comes Cambodia: Asia’s New Tiger Economy, Asian Development Bank, May 10, 2016,
https://www.adb.org/news/features/here-comes-cambodia-asia-s-new-tiger-economy]
Define the term economic growth indicated in bold in the text (paragraph [2]).
Define the term diversification indicated in bold in the text (paragraph [5]).
Using a demand and supply diagram, explain why the increase in the minimum wage might affect Cambodia’s garment manufacturing competitiveness against other countries in the region (paragraph [4]).
Using an externalities diagram, explain why the garment industry is a source of market failure (paragraph [8]).
Using information from the text/data and your knowledge of economics, evaluate export promotion as a strategy for achieving economic development in Cambodia.
Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For a demand and supply diagram, the vertical axis may be price, or p. The horizontal axis may be quantity or q. A title is not necessary.
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For an externalities diagram, the vertical axis may be price, p, or costs/benefits.
The horizontal axis may be quantity or q. A title is not necessary.
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
“Evaluate” requires the candidate to make an appraisal by weighing up the strengths and limitations.
Responses may include:
- definition of export promotion
- definition of economic development.
Economic analysis, focusing on economic development, may include:
- AD/AS theory
- poverty cycle
- comparative advantage
- FDI role.
To explore the impact on:
Strengths of export promotion:
- Export promotion has helped Cambodia’s economy to grow (paragraph [2]) by producing manufactured products using its low-cost workers.
- Cambodia has a comparative advantage in the production of garments and footwear because it has a large supply of low-skilled, inexpensive labour (paragraph [2]); this has allowed it to specialize.
- There has been an increase of 10.2 % exports of garments and footwear (paragraph [2]).
- It has attracted much foreign direct investment (paragraph [2]).
- Manufacturing jobs have lifted millions of people out of poverty in Asia; Cambodia hopes to benefit in the same way (paragraph [3]).
- Creation of employment leads to higher incomes and can lead to higher standards of living.
- 30 000 young Cambodians enter the labour force each year and could find jobs in the export industries.
- Net exports is a component of AD; if exports increase then this will result in an increase in RGDP, which may be used for development objectives.
- Transfer of technology as a result of FDI.
- Foreign firms in the export industries may provide training for the workers, helping them to become more productive.
- As a way to encourage exports, Cambodia is supporting diversification with supply-side policies (paragraph [5]) that could enhance the opportunities for small and medium-sized enterprises, which could bring about economic development.
Limitations of export promotion:
- Over-specialization is a risk for Cambodia, making it vulnerable to forces outside of its control.
- If minimum wages in Cambodia continue to increase, foreign investors may move to cheaper places (paragraph [4]).
- Export centres are likely to locate in urban areas, worsening rural–urban inequality, which is already high (paragraph [6]).
- Women may be more likely to be workers in the garment industry and may be trapped in low-wage jobs, worsening gender inequality (paragraph [6]).
- The garment and footwear industries create air and water pollution, threatening sustainability (paragraph [8])
Any reasonable evaluation.
