4.9 Barriers to Economic Growth and Economic Development Questionbank

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)

ECONOMIC REALITIES AND POLICIES IN BANGLADESH

Bangladesh is a rapidly developing country in South Asia, recognized for its thriving ready-made garment (RMG) industry, which accounts for over 80% of export earnings. Government reforms since the early 2000s, aimed at boosting export competitiveness, have led to steady gains in real GDP. For instance, between 2019 and 2022, Bangladesh’s real GDP growth averaged 5.2% annually. However, persistent challenges such as high rural poverty rates (officially at 20.1%, with extreme poverty at 10.5%) and vulnerability to climate risks continue to threaten inclusive growth.

Remittances form a major pillar of the economy, totaling over US$24 billion in 2021. Inflows from the Bangladeshi diaspora support household consumption and reduce external vulnerabilities, contributing to the country’s foreign currency reserves. Even so, the government has been concerned about maintaining exchange rate stability, especially in light of global inflationary pressures and supply chain disruptions, which have driven up the cost of essential imports like fuel and machinery. To cope with rising expenditures on food and energy, the government raised tariffs on luxury goods while restricting administrative barriers for essential commodity imports.

On the microeconomic front, the government recently introduced a consumption tax on sweetened beverages to curb rapidly rising obesity rates. Local bottlers initially protested the policy, arguing it would reduce their profits and force layoffs in urban factories. Yet public health advocates insist that the potential long-term social benefits reduced health-care costs and a healthier workforce outweigh the short-term economic costs. Meanwhile, targeted subsidies on fertilizers aim to support agricultural productivity; farmers in the northern regions have long claimed that lack of affordable inputs restricts their ability to increase crop yields and incomes.

Bangladesh’s push for infrastructure improvements particularly in roads, ports, and energy has attracted modest but growing foreign direct investment (FDI), totaling around US$2.8 billion in 2022. Corporate tax incentives are given to firms that establish manufacturing plants in special economic zones, spurring output in electronics and pharmaceuticals. Yet the domestic labor force often lacks specialized skills, leading to high underemployment. The government’s Skills for Employment Initiative, launched in 2020, aims to address these gaps by providing technical training and apprenticeships to youths aged 18–30.

Concurrently, there are ongoing debates on reducing import tariffs further to encourage greater participation in regional trade blocs. Economists highlight that a more liberalized trade environment can improve access to cheaper raw materials for local industries. Critics, however, worry that swiftly removing tariffs might destabilize nascent domestic firms already grappling with competition from established foreign producers.

Bangladesh faces significant environmental and developmental hurdles. Climate change-related floods frequently destroy crops, thereby exacerbating rural poverty. Government officials have begun working with international donors to finance climate-resilient infrastructure elevated roads and flood barriers while also supporting microfinance programs targeted at poor households. These policies seek to break the vicious cycle of poverty, whereby low incomes lead to low investments in education and productivity, perpetuating underdevelopment. Early signs suggest that expanded access to small loans, particularly for female entrepreneurs, is reducing extreme poverty in several flood-prone districts.

Despite these efforts, inequalities persist. In urban areas, the Gini coefficient remains relatively high, reflecting income gaps within the service sector. Doctors and engineers earn significantly above the national average, boosting demand for private education that many poor households cannot afford. The government has tried to bridge this inequality by directing additional funds to public schools, focusing on science and technology curricula.

The prospects for Bangladesh hinge on effective policy coordination. Balancing short-term macroeconomic stability such as keeping inflation below 8% with long-term structural reforms in education, infrastructure, and trade policy remains a central challenge. The government’s ability to manage environmental risks, attract investment, and provide social protection will greatly influence whether Bangladesh can transition from a lower-middle-income to a higher-income country in the coming decades.

Table 1: Selected Macroeconomic Indicators for Bangladesh (2019–2022)

Table 2: Development and Social Indicators for Bangladesh

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.

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

India’s economy is one of the fastest-growing in the world, yet it continues to face various challenges such as income inequality, infrastructure bottlenecks, and volatile agricultural markets. Onions, for instance, are a staple food item in India and play a significant role in the Consumer Price Index (CPI). Fluctuations in onion prices, caused by unpredictable supply shocks and strong consumer demand, can lead to rapid changes in household expenditures.

Macro Performance and Government Revenues
India’s real GDP growth slowed down in 2019; however, the economy was still thriving compared to many other emerging markets. Due to the impact of the COVID-19 pandemic in 2020, real GDP growth declined sharply, but bounced back in 2021 and remained relatively strong in 2022. The country’s population continues to grow, contributing to both challenges and opportunities for economic development. Despite a rebound in total government tax revenues (direct and indirect taxes), issues of income inequality remain significant.

Table 1 below shows selected macroeconomic indicators:

Table 1: Selected Macroeconomic Indicators for India (2019–2022)

Income Distribution
India has made strides in reducing poverty; however, income inequality remains an obstacle to equitable growth. Table 2 presents approximate data on the distribution of income by quintile in 2022:

Table 2: Income Distribution in India (2022)

Market for Onions
Onions are a basic necessity in the Indian diet, but supply constraints (such as monsoon variability and storage issues) often drive significant price volatility. Table 3 shows onion prices and daily quantities demanded in four major Indian cities:

Table 3: Onion Prices and Daily Quantities Demanded

Recently, policymakers have been studying the price elasticity of demand and supply (PED/PES) for onions in order to design more effective price stabilization policies. In Mumbai, if prices were reduced from INR 30/kg to INR 25/kg, it is estimated that daily onion consumption would rise from 900 tonnes per day to 1,000 tonnes per day.

Government Investment and the Multiplier
India’s government regularly invests in infrastructure (roads, railways, digital connectivity) to stimulate growth. Economic models suggest that such investments may have a significant multiplier effect on real GDP if the marginal propensity to consume (MPC) is high. On average, the MPC in India is estimated to be around 0.8, though regional differences exist.

Figure 1 below shows the country’s real GDP growth trend from 2019 to 2022, illustrating the sharp slowdown in 2020 and the rebound in 2021.

Figure 1: India’s Real GDP Growth from 2019–2022

• 2019: +4.0%
• 2020: –6.6%
• 2021: +8.9%
• 2022: +7.0%

Economic Challenges and Developments in Jordan

Jordan, located in the Levant region of the Middle East, has historically served as a major trade hub due to its strategic location. Over the past decade, Jordan’s government has pursued policies to diversify the economy beyond traditional service sectors such as tourism and finance. While Jordan boasts political stability relative to some neighbors, it faces persistent macroeconomic and microeconomic challenges, including high unemployment, persistent budget deficits, and rising poverty levels in rural areas. In 2022, Jordan’s real GDP grew by approximately 2.2%, marking a modest rebound after slower growth in previous years.

One major concern is the country’s dependence on imports for energy, food staples, and manufactured goods. The government maintains a partial subsidy on wheat and cooking gas to keep basic food prices affordable and reduce social pressures. However, critics argue that these subsidies weigh on government spending and distort market signals. Efforts to gradually remove universal subsidies and move toward targeted assistance have been tested amid inflationary pressures that reached 4.5% in the same year. Jordan’s budget deficit stood at around 6.8% of GDP in 2022, prompting the government to seek further support from international financial institutions to implement fiscal reforms.

Unemployment remains a pressing issue, averaging about 22% in urban centers and exceeding 35% among the youth. Small and medium-sized enterprises (SMEs) complain of limited access to credit, constraining their ability to invest in capital goods and expand operations. Foreign direct investment (FDI) inflows have stagnated in recent years, partially due to geopolitical risks and global economic uncertainties. The Central Bank of Jordan has maintained a fixed exchange rate regime, pegging the Jordanian dinar to the US dollar to stabilize investor confidence and control inflation. This policy requires careful reserves management, as fluctuations in remittances and tourism receipts can influence the country’s current account balance.

Jordan also contends with developmental challenges and pockets of poverty. Official estimates put the national poverty rate at about 15%, though some independent studies suggest regional disparities are more pronounced. In rural governorates, inadequate infrastructure, limited job opportunities, and underinvestment in education perpetuate what policymakers describe as a “poverty trap.” Government initiatives to address poverty include conditional cash transfers, microfinance programs, and public works projects aimed at boosting income for low-skilled households. Non-governmental organizations also play a significant role in bridging gaps in healthcare and education services, particularly for vulnerable groups.

On the trade front, Jordan has signed agreements with the European Union (EU) and other regional partners to reduce tariffs on a wide range of goods. Exports of agricultural produce, chemicals, and textiles have grown, but the trade balance remains negative. Jordan’s reliance on imported oil and capital equipment contributes to a large current account deficit. Meanwhile, some exporters point to administrative barriers and compliance costs when selling into foreign markets. The government, with donor support, has invested in infrastructure and logistics hubs to improve the competitiveness of Jordanian goods abroad.

Recently, Jordan has increased its focus on sustainable development. Investments in renewable energy, particularly solar power, have gained momentum, improving energy security. Government agencies have also introduced pilot projects to reduce water wastage and improve agricultural productivity in arid regions. Nevertheless, recurring droughts and the influx of refugees from neighboring conflict zones create additional pressures on public services, threatening progress in poverty reduction.

In the short to medium term, Jordan’s economic outlook depends on containing inflation, reducing the budget deficit, and attracting FDI to diversify its economic base. Overcoming structural inefficiencies, supporting SMEs, and chipping away at long-standing poverty levels will require continued policy reforms and collaboration with international partners. The interplay of government interventions, global market conditions, and social development programs will ultimately shape Jordan’s capacity for sustained and equitable growth.

Table 1: Selected Macroeconomic Indicators for Jordan (2019–2022)

Table 2: Development and Social Indicators for Jordan

Denmark, a small open economy in Northern Europe, consistently ranks among the countries with the highest standards of living. It has a strong welfare system, relatively low levels of income inequality, and high tax rates. Denmark’s main exports include pharmaceuticals, machinery, and dairy products, with exports accounting for approximately 55% of its gross domestic product (GDP). In 2022, total exports were DKK 1.3 trillion and total imports were DKK 1.2 trillion, reflecting Denmark’s significant degree of integration into global trade.

The Danish government asserts a high commitment to green growth. In 2022, it announced a planned DKK 40 billion increase in infrastructure spending for renewable energy projects over the next three years, aiming to reduce carbon emissions and create new jobs.

Table 1: Selected Macroeconomic Indicators for Denmark (2018–2022)

Denmark’s relatively high tax revenue (as a percentage of GDP) partly stems from its progressive income tax system, a 22% corporate tax rate, and a 25% value-added tax (VAT) on most goods and services. The government hopes that increased spending, alongside its ongoing tax structure, will maintain stable growth and promote economic equity.

Table 2: Price and Quantity Data for Danish Cheese (per kg)

The table above shows hypothetical weekly market data for Danish cheese at two different price levels. Denmark’s dairy sector is important for its economy, representing a significant portion of agricultural output and exports.

Despite its strong export performance, Denmark faces challenges typical of advanced economies, such as maintaining competitiveness, addressing demographic changes, and balancing environmental aims with fiscal considerations.

Northland Free Trade Agreement

Northland is a landlocked developing country of 5 million people. Despite agriculture employing 60% of the labor force, the sector contributes only 25% to GDP, highlighting significant productivity challenges. The country's trade profile reflects this economic structure, with exports concentrated in primary products like coffee, tea, and textiles, while relying heavily on imports of machinery, oil, and processed foods, resulting in a persistent annual trade deficit of $1 billion.

In response to growing concerns about import dependency and the need to protect domestic industries, Northland's government initially implemented substantial tariffs on processed food imports. This protection policy aimed to nurture local food processing capabilities and reduce the trade deficit. However, while these measures provided some shelter for domestic producers, they also resulted in higher consumer prices and limited market competition.

Recently, Northland has taken a significant step by signing a free trade agreement (FTA) with a neighboring country, marking a shift from protectionist policies toward regional integration. This move presents both opportunities and challenges: while it promises improved market access for Northland's exports and potential technology transfer through increased regional trade, it also exposes local producers to stronger competition. However, to maintain domestic standards of living in face of fear of machinery replacing jobs, the Northland's government has imposed a minimum wage. The success of these policy shifts will largely depend on how well Northland's agricultural sector can adapt to new market pressures while leveraging its traditional export strengths.

Table 1: Northland's Trade Data Before and After FTA

Table 2: Price Elasticities of Demand for Northland’s Key Exports and Imports