Expert answer:Research Activity 2

Expert answer:Week 3 Activity 1: Research Activity: Economic OutlookYou work at a company that manufactures low-cost computers and is currently considering entering India. Use the World Development Indicators (WDI) – the World Bank’s premier data compilation of data on development – to gather information on this country. Prepare a short report focusing on the economic policy and external debt, education, and infrastructure of India as it applies to your company’s product. Make sure you examine the trends India may have been experiencing over the past few years in your selected variables. Your report should be a maximum of 1 page, double-spaced, Word or PDF document. However, you can have unlimited number of exhibits that should be put in an Appendix in the same file. You have the option to substitute the company and country featured as examples in this research activity with the company and country you selected in your group project (completely optional).Hint:Global Edge websiteGo to Global Edge Resource DeskSearch Phrase: “World Development Indicators”Resource Name: World Bank: World Development Indicators globalEDGE™Category: “News & Periodicals: Publications”World Bank website On the World Bank website, click on the “By Country” tab and select India. Then, go to the corresponding indicators.
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Extended Hints:
A. Economic policy and external debt
Gross National Income (GNI)
• Income generated by a nation’s residents from domestic and foreign activity.
• Preferred over GDP which measures in addition income from nonresidents.
GNI/capita:
• reveals purchasing power of the country.
• Compare to other countries, e.g., high values and advanced economies.
Growth Rate in GNI/Capita
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Important since high values indicate a high growth market.
As GNI or GNI/capita it is affected by underground economy (ideally we need an estimate for this).
Managers usually will prefer a fast-growing market, all else constant. If a choice has to be made between (1) high
GNI/capita but low growth rate country and (2) lower GNI/capita but much higher growth rate country, then
management will usually opt for option 2.
Research Activity:
▪ We want to see the growth rate of GNI/capita over the past say 6-10 years.
▪ Given that we compare values across time we must account for inflation.
▪ Therefore, we need to obtain the GNI/capita in constant currency and then calculate the growth rate.
▪ Get inflation separately to see trends in prices over time.
▪ In this task we don’t compare the GNI/capita of India to other countries so no need to obtain GNI in PPP or at
US$ terms. If we want to get some sense on how these values compare to US then we should use the GNI in
US$ or PPP terms.
▪ So get the GNI/Capita in constant US$.
Income Distribution
Even or uneven distribution of income in a country may present opportunity depending on the type of product and
population.
Your book has a nice example on this.
In the online notes, a similar example is presented:
In 2010, Paraguay had
a population of 6.5 million,
a GNI of $33 billion in PPP terms, and
Income distribution: 20% of the population received >56% of the country income. This indicates that a sizable group
of people are potential customers for low-volume, high-priced luxury products.
On the other hand, the market is rather small (6.5 million population) for low-priced goods requiring a high sales
volume.
Given these conditions Paraguay may not be a good market for entry in low-priced goods while for high-priced
goods the returns from entering the market might not be higher than the cost of entry.
These 3 measures can be potentially used to eliminate a market without further analysis.
Research Activity
Obtain the income distribution, population, and GNI. How India compares to the above example?
Private Consumption
If your results from the previous step are promising then gather the private consumption data.
Disposable income is total personal income minus personal current taxes.
Discretionary income is total income minus personal current taxes and necessity goods (food, rent, mortgage,
utilities, etc.).
As such, manufacturers of, say, household durables will be interested in disposable income.
While producers of nonessential goods will be interested in the discretionary income.
Read the book, especially the Relevance for Managers section under Private Consumption.
Research Activity
▪ Which one you would need if you are selling low-costs computers in India?
Unit Labor Costs
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Defined as total direct labor costs over units produced.
Firms will make an investment opportunity if lower than currently available to the firm, everything else constant.
Firms prefer slower-rising unit labor costs. Please read the relevant section in your book.
Need to monitor over time for rates of increases. For instance, the recent increase in wages in China along with tax
breaks in US has resulted in several firms bringing back manufacturing (or thinking about it) in the US. Wall Street
Journal has a special section with firms doing exactly that. It is called “Remade in the US.”
Research Activity
▪ We are not given in which country the production takes place. We can skip this but for your project you
should definitely provide some estimates of labor costs.
External Debt
If becomes too large to be sustainable then governments may impose price controls, cut government spending,
impose wage controls, and impose capital controls to keep cash in the country. It can also cause a shift from imports
to local production of goods.
“debt service difficulties” become increasingly likely when the ratio of the present value of debt to exports
reaches 200 to 250 percent and the debt-service ratio (amount of export earnings needed to meet annual interest
and principal payments on a country’s external debts) exceeds 20 to 25 percent(see your textbook).
Research Activity
▪ Are there any external debt issues in India? Obtain these indicators.
Population
Usually as input in calculations of other indicators (X/capita).
Research Activity
• Obtain this indicator.
Age Distribution
Older people might not buy laptops.
Research Activity
• Obtain this indicator.
Population Density and Distribution
Densely populated nations make product distribution and communication simpler and less costly.
Research Activity
• Obtain this indicator.
B. Education
Here we don’t have much theory in the textbook to go on. How would education play a role
in the market for laptops?
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Think about uses of laptops (educational, entertainment in some cases, work, etc.).
Do you think that literacy or school enrollments would be positively correlated with use of laptops? If yes,
then gather this measure.
Article on the Computers and Schools topic
Research Activity
Obtain an indicator.
C. Infrastructure
Revisit the MPI calculations from last week. Under infrastructure you have:
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Main telephone lines (in several countries around the world telephone lines are used for high-speed internet).
Cellular mobile subscribers (potential consumers).
Secure Internet servers (the higher denotes increasing use of computers).
Other?
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• Research Task.
• Obtain these indicators.
D. Sum up
Growth Rate in GNI/Capita.
Population.
GNI in constant US$ or constant PPP terms (whichever available).
Income distribution.
Private Consumption (pick the one that is more appropriate for the research task).
Present value of debt to exports (ratio).
Debt-service ratio.
Age Distribution.
Population Density.
School Enrollments.
Main telephone lines.
Cellular mobile subscribers.
Secure Internet servers.
OTHER – guide your selection with THEORY from the book, online notes, or any academic article?
Location of Indicators in World Bank
Growth Rate in GNI/Capita
From Economic Policy & Debt → National Accounts → select GNI (constant 2000 US$)
From Health → Population → select Population, Total
Calculate in your excel the ratio of the 2 in order to get GNI/capita and then find the growth rate using the formula
from online notes.
Income distribution
From Poverty → Income distribution → select all of the Income share held by….
For India, data exist for 2005. Use those data.
Disposable Income
A proxy for this is the GDP per capita (PPP)
From Economic Policy & Debt → Purchasing Power Parity → select GDP per capita, PPP (constant 2005
international $).
Discretionary Income
Not available, but we can use a second best that includes expenditures on both necessities and household durables.
From Economic Policy & Debt → National Accounts → select Final Consumption expenditure, etc (constant 2000
US$).
Inflation
From Financial Sector → Exchange rates & prices → select inflation, consumer price (annual %).
From Financial Sector → Exchange rates & prices → select inflation, GDP deflator (annual %).
The first reason we use it to see price levels, the second is to deflate (remove inflation) from GNI, GDP when they
are listed in current (not constant) terms.
Exchange Rates (another source, you need it for Research Activity 2)
From Financial Sector → Exchange rates & prices → select official exchange rate (LCU per US$), period average.
LCU stands for Local Currency Units.
External Debt Ratios
From Economic Policy & Debt → External Debt → Debt ratios & other items → select Present value of external
debt (% of exports of goods, services and income).
Debt-Service ratio: From Economic Policy & Debt → External Debt → Debt ratios & other items → select Public
and publicly guaranteed debt service (% of exports, excluding workers’ remittances).
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Population Density
From Environment → Density & urbanization → select Population density (people per sq. km of land area).
Age Distribution
From Health → Population → select Population 0-14 (% of total), Population 15-64 (% of total), Population 65 and
above (% of total).
Education
From Education → select one of the school enrollment variables (whichever you think is more appropriate). You
need total numbers.
Infrastructure
From Infrastructure → select the appropriate variables (see previous slides).
Definition of any indicator can be found at the World Bank website.
Screenshots of the World Bank Database
STEP 1: Go to the World Bank website and click on World Development Indicators:
Alternate Version
STEP 2: Under Country tab select India.
STEP 3: Under Series select Economic Policy & Debt, Education, and Infrastructure and then
select the indicators (selected indicators are shown on the right-hand side of the screen
below):
STEP 4: Under Time select at least 6 years of data:
STEP 5: After you make all of your selections click on the DOWNLOAD button at the upper
right of the above screen or if you press TABLE you have the option to configure the way
the data are presented. I clicked on TABLE and then on Table Options button at the upper
right of the screen. Under FORMAT NUMBERS I increased the Precision to 3 decimal points.
Under ORIENTATION I chose Custom and then given that we get data for only one country I
selected Country on Page, Series to be on Column, and Time to be on Row. Click on Apply
Changes to get your data (table below is before changes were applied).
Submit your completed research task through the Turnitin drop box located within the Assignments area by
no later than end of Day 6.
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