Differences in economic development between countries — practice question

Background text: Economic change in Malawi Malawi is a low-income country in East Africa. It is frequently hit by natural disasters such as droughts, floods and storms. In January 2022, Malawi was affected by Storm Ana. This caused damage to agricultural crops, factories, forests and power stations. More than three-quarters of Malawi’s labour force work in agriculture. Tea and sugar are two of the country’s major crops. The amount of tea supplied for sale is influenced by weather conditions, government subsidies and fertiliser prices. The world sugar market has also been affected by health reports that identified the possible harmful effects of eating too much sugar. Three of the Malawian Government’s priorities are to develop new industries, improve education standards and expand more sustainable sources of energy. The share of Malawian children who complete their primary education (5-11 years of age) is relatively low. Table 1.1 gives GDP per head and the percentage of children who finish primary education in selected countries in 2022. Only a small share of Malawi’s population has access to electricity. Most households depend on wood and charcoal for cooking and heating. Using wood as fuel contributes to forest loss and worsens air quality. However, the country receives 3000 hours of sunshine each year. This suggests that solar energy could be developed. There would be an initial expense to install solar panels and to lower the risk of storm damage. Solar energy plants (also called solar farms) can occupy a large area and create visual pollution. Even so, a successful solar energy industry could cut Malawi’s fuel imports and might influence its exchange rate. Malawi’s foreign exchange rate fell in 2022. The country’s currency, the kwacha, bought fewer US dollars. This depreciation affected Malawi’s current account of the balance of payment, its inflation rate and its economic growth rate. Some economists argued that the Malawian Government should prevent the kwacha from falling further in value.