3.1 Measuring economic activities Questionbank

Nepal is a landlocked country in South Asia with an estimated population of 29 million. Agriculture remains central to the economy, accounting for about 27% of gross domestic product (GDP) and employing a sizeable proportion of the workforce. However, the country also relies heavily on tourism and remittances from migrant workers abroad, which make up more than 25% of Nepal’s total GDP. Nepal has been seeking to diversify its economy through foreign direct investment (FDI) in energy, infrastructure, and services.

In 2020, Nepal’s GDP stood at US$29.3 billion. By 2021, it had increased to US$30.5 billion, partly due to post-pandemic economic recovery and continued growth in the tourism sector. Official unemployment figures in Nepal are relatively low, but underemployment remains a major issue, especially in rural areas. The country’s Gini coefficient is estimated at 0.32, indicating moderate income inequality, though rural–urban disparities still persist. Nepal’s tax system includes both direct and indirect taxes; the highest marginal rate for personal income tax is approximately 30%.

The tourism sector is vital. Trekking permits, especially for the Annapurna, Everest, and Langtang regions, represent a key source of government revenue. Due to recent changes in permit fees and fluctuations in tourism numbers, local businesses have experienced varying levels of income from trekking-related services.

Table 1: Labour market data in Nepal (2021)

Table 2: Trekking permit data for Nepal

Albania is a country in Southeastern Europe with an estimated population of about 2.8 million in 2022. The Albanian economy has been transitioning from a centrally planned system to a market-based system and has experienced positive real GDP growth in recent years. Tourism is a significant contributor to Albania’s GDP, and the government has intensified efforts to promote the country’s attractions along its Adriatic and Ionian coasts.

In 2022, Albania’s unemployment rate was around 12%, partly due to structural challenges in the economy. The government operates a progressive personal income tax system, with rates ranging from 0% up to 23%. Corporate income tax is set at 15%. Value-added tax (VAT) on most goods and services stands at 20%.

Albania’s trade balance remains negative, as the country’s main exports (textiles, footwear, and mineral fuels) have not kept pace with imports (machinery, food, and manufactured goods). The government has embarked on several infrastructural projects to attract foreign investment and reduce transport costs, including a newly announced US$200 million investment in highways. Economists estimate the marginal propensity to consume (MPC) in Albania to be about 0.8.

Table 1: Selected Macroeconomic Indicators for Albania

Table 2: Tourism Data in Albania (2022)

Guatemala is a Central American country with an estimated population of 17.9 million (2022). According to World Bank data, real GDP was approximately US$85 billion in 2022. Agriculture, particularly coffee, sugar, and bananas, makes up a significant portion of Guatemala’s exports (around 28% of total exports). While the tourism sector has been expanding, recent global events caused slowdowns. The country experiences persistent inequality, with a Gini coefficient estimated at about 0.48 in 2021. Poverty remains a major concern, especially in rural areas.

Guatemala’s tax system includes both direct and indirect taxes, although collection remains challenging. Personal income tax rates are progressive, with a top rate of 31%, while the corporate income tax rate is 25%. A value-added tax (VAT) of 12% applies to most goods. Government spending has focused on infrastructure and social programs to reduce poverty and increase potential long-term growth.

Table 1: Macroeconomic Indicators of Guatemala (2019–2022)

Table 2: Income Distribution in Guatemala (2021)

Table 3: Market for Guatemalan Coffee in the US (price per 50 kg bag)

Table 4: Tax Rates in Guatemala

Figure 1 (not drawn here) shows that, when government spending in Guatemala increases by US$1 billion, real GDP rises by an estimated US$2.5 billion. This suggests a government spending multiplier of 2.5.

CASE STUDY: Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons-mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan's total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country's capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan's real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract in manufacturing and services. Improvements in transport connectivity-facilitated by ongoing infrastructure projects-have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019-2022)

Table 2: Trade and Social Indicators

QUESTIONS

Economic Dynamics in Angola

Angola, located in southwestern Africa, is one of the continent’s largest oil producers, with over 90% of its exports tied to crude oil. In recent years, its real GDP growth has been volatile, fluctuating between –1.2% and 2.4% annually from 2018 to 2022, reflecting significant dependence on global energy prices. Despite this oil dominance, the Angolan government has embarked on diversification initiatives to stabilize the economy and reduce vulnerability to external shocks.

Inflationary pressures have been a persistent challenge. In 2021, annual inflation reached 22%, eroding household purchasing power, particularly among lower-income groups. The Banco Nacional de Angola has responded with tight monetary policy, raising benchmark interest rates to 20% in 2022 to curb excess liquidity. Meanwhile, high food costs and depreciation of the kwanza (Angola’s currency) continue to push up import prices.

Angola’s external debt stood at approximately US$52 billion by the end of 2022, prompting government measures to manage debt-service obligations. The nation has engaged in negotiations with international organizations to secure favorable terms. While these arrangements have enabled the financing of infrastructure projects, critics argue that the burden of debt repayment poses risks to future fiscal stability.

In the domestic arena, the government introduced targeted subsidies for agricultural inputs such as fertilizer and seeds to incentivize local food production. However, some policymakers and economists question the efficiency of these subsidies, citing the risk of resource misallocation and corruption. At the same time, partial privatization of several state-owned enterprises aims to encourage private sector investment and improve overall productivity.

Beyond the oil sector, Angola’s economy relies on diamonds, fisheries, and agriculture. In 2022, Angola exported approximately US$1.3 billion worth of diamonds, representing a crucial revenue source after oil. To further diversify, the government has prioritized investments in education and health to strengthen human capital, hoping to spur growth in technology-driven and service-based industries. Infrastructure expansion, especially in rural areas, is underway to bridge the urban-rural divide and stimulate market integration.

International trade relationships are also undergoing transformation. While Angola remains an active member of the Organization of the Petroleum Exporting Countries (OPEC), it has recently signed trade facilitation agreements to reduce import tariffs on selected capital goods. This move aims to attract foreign direct investment (FDI) in manufacturing, but concerns persist about local firms’ competitiveness, given power supply challenges and limited access to finance. Angola’s central bank manages the exchange rate of the kwanza, occasionally intervening in currency markets to stabilize fluctuations arising from volatile oil earnings.

Socioeconomic disparities are still evident, with an estimated Gini coefficient of 0.54 in 2021. Although the government has expanded health and education programs, rural communities remain underserved. Youth unemployment, recorded at 28% in 2022, underscores the need for better job creation policies and entrepreneurial support. The success of Angola’s economic reforms will likely hinge on sustained political commitment, effective resource management, and the gradual diversification away from oil-dependence toward a resilient, broad-based economy.

Table 1: Angola’s Selected Macroeconomic Indicators (2018–2022)

Table 2: Private Sector and Export Data for Angola (2018–2022)

Italy is the third-largest economy in the Eurozone, with one of the highest levels of public debt in the world (approximately 150 % of GDP in 2021). Despite having a diversified manufacturing sector and being one of the world’s largest wine exporters, Italy has faced persistent challenges, including relatively low growth, high structural unemployment, and regional disparities between the more industrialized North and the agricultural South.

According to the World Bank, Italy’s real GDP grew by 3.9 % in 2022, following a rebound in economic activity after significant pandemic-related contractions. Tourism accounts for about 13 % of GDP, while wine exports, led by regions such as Veneto and Tuscany, play a significant role in the country’s trade balance. However, youth unemployment remains high, and income inequality, measured by the Gini coefficient, remains a concern for policymakers.

Tble 1: Selected Macroeconomic Indicators of Italy (2019–2022)

Table 2: Distribution of Income in Italy by Quintile (estimates for 2022)

Italy’s fiscal policy is characterized by a progressive income tax system, where the tax rate increases with higher incomes. Meanwhile, corporations face an average of 24 % corporate tax. The government has struggled to foster high-growth rates due to constrained public finances and the need to manage its large debt burden.

Table 3: Market for Italian Wine Exports (2022)

Producers of Italian wine benefit from strong demand in foreign markets. However, increasing global concerns about inflation and supply chain disruptions have impacted production costs, especially for small wineries. The table above shows data for two different price points in the export market for Italian wine.

Estonia is a small Baltic nation of approximately 1.3 million people and a member of the European Union (EU). Its economy is characterized by a highly developed digital infrastructure, a strong commitment to innovation, and comparatively low public debt. The country has seen notable growth in service sectors such as tourism and information technology (IT). Estonia is also known for its relatively low level of corruption and ease of doing business.

In recent years, Estonia’s GDP growth has fluctuated. Between 2018 and 2019, real GDP grew steadily due to robust exports of IT services and growth in inbound tourism. However, the global economic slowdown in 2020 led to lower tourism revenues, affecting the country’s overall economic performance. Income inequality has been an area of focus for policymakers, given Estonia’s Gini coefficient has been moderate but slowly increasing. The government maintains several forms of taxation (including VAT, personal income tax, and corporate taxation), each contributing differently to government revenue.

Tourism is an important source of income, especially from visitors from Finland, Russia, and other EU countries. Average spending per tourist has tended to rise, but so have accommodation and transportation costs. The price elasticity of demand for inbound tourism is not negligible, as changes in travel costs and exchange rates influence tourist flows.

Estonia’s taxation system includes a flat personal income tax rate of 20%, although there are discussions about introducing progressive elements. VAT rates vary depending on the product category. Meanwhile, the government has contemplated expansionary fiscal measures to offset slower growth periods. Policymakers also debate the efficacy of supply-side policies (such as reducing labor taxes and encouraging business start-ups) to maintain Estonia’s competitiveness in the global digital economy.

Table 1: Selected Macroeconomic Indicators for Estonia (2018–2021)

Table 2: Estimated Demand for Inbound Tourism (annual)

Table 3: Government Tax Data (2021)

Table 4: Consumption and Multiplier Data (2021)

Economic and Social Developments in Hong Kong

Hong Kong is an international financial center located on the southern coast of China. Renowned for its open trading environment and large foreign exchange reserves, Hong Kong has historically pursued free-market policies to spur economic growth. However, recent challenges, including sluggish global demand and ongoing demographic shifts, have contributed to concerns about rising income inequality and persistent poverty. The government reports that 15.8% of the population (over 1.1 million people) live below the official poverty line, which is defined relative to median household income. In addition, Hong Kong’s Gini coefficient remains among the highest in developed economies, at around 0.539 in 2021.

Hong Kong’s role as an entrepôt for Chinese exports and as a major financial hub has driven its economic growth over several decades. Services make up close to 93% of GDP, while manufacturing accounts for only 1% of GDP. The region’s unemployment rate has typically been low, hovering around 2.9% in normal times. However, certain sectors particularly tourism and hospitality experienced a downturn due to global movements in travel restrictions and changing consumer behavior. This contributed to a slight pick-up in the overall unemployment rate to 4.7% by 2021.

The government maintains a near-balanced budget, attributable in part to revenue sources such as profits tax, stamp duties on real estate transactions, and land lease sales. Nevertheless, there is growing debate on whether Hong Kong’s minimal social welfare spending is sufficient to address structural poverty. Some argue that targeted subsidies and cash transfers are needed to prevent low-income households, especially the elderly, from slipping into deeper poverty. Indeed, the government launched a pilot scheme in 2020 offering housing vouchers to households below 60% of median income, claiming initial success in reducing homelessness by 15%.

Hong Kong also faces macroeconomic challenges. Real GDP growth decelerated from 3.0% in 2018 to -1.2% in 2019, before contracting again in 2020 due to global economic disruptions. By 2021, real GDP marked a modest recovery of 2.5%. Inflation remained relatively low, averaging 1.6% in 2021, owing partly to subdued consumer demand. At the same time, the Hong Kong Monetary Authority (HKMA) employs a currency board system pegging the Hong Kong dollar to the US dollar, which limits the use of independent monetary policy instruments.

In response to developmental concerns, the government has initiated programs focused on skill enhancement and vocational training to prevent the formation of a “poverty cycle,” where poor access to education and health-care perpetuates low wages and limited economic mobility. A new Child Development Fund aims to provide means-tested asset-building accounts for underserved youth, while strong emphasis is also being placed on technology upskilling and English language proficiency to enhance employability in service-oriented sectors.

Despite these measures, Hong Kong’s open economy leaves it exposed to global trade fluctuations. Exporters face falling demand from some of Hong Kong’s key markets, even as rising regional competition for port and logistics services puts additional pressure on trade revenues. On the other hand, foreign direct investment (FDI) inflows rose to HKD 1.1 trillion in 2021, reflecting sustained investor confidence in Hong Kong’s legal framework and financial markets. Policymakers must navigate a tight balance between preserving Hong Kong’s “small government, big market” tradition and addressing socioeconomic gaps that threaten long-term development.

Below are selected data illustrating the economy’s performance and its social challenges.

Table 1: Hong Kong’s Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty and Development Indicators for Hong Kong