International Business Assignment: Economic Development & Trade

This assignment delves into critical aspects of international business, addressing three key questions. The first question examines the limitations of GDP per capita and quality of life as sole indicators of economic development, highlighting the importance of a more holistic approach such as the Human Development Index (HDI). The second question analyzes the impact of China's economic rise on global trade, particularly its effects on Asia, Europe, and North America, including the ongoing trade war with the USA. The final question explores the rationale behind investing in an automobile assembly facility in Costa Rica, considering factors such as skilled labor, strategic location, and trade openness, and discusses the degree of control a global car manufacturer would likely exercise over the operation. The assignment provides a comprehensive understanding of international business dynamics, offering insights into economic indicators, global trade relationships, and foreign investment strategies.

Running head: INTERNATIONAL BUSINESS
International Business
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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................4
Answer 3..........................................................................................................................................6
References........................................................................................................................................8

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Answer 1
GDP or Gross Domestic Product refers to the total value of the goods and services
produced within the geographic boundary of a country in a given period of time, such as, in a
financial year. GDP per capita represents GDP per person in a nation. It is obtained by dividing
the GDP by the total population of a country (Mankiw). GDP measures the economic growth of
a nation. Hence, GDP per capita indicates the prosperity of an economy, as it indicates how
much of the production value can be allotted to each of the individual citizens of a nation. Higher
GDP per capita implies higher economic growth level and thus, the developed industrial
countries tend to have higher GDP per capita. However, it is highly dependent on the population
size of the nation. Higher is the population, lower is the GDP per capita. Thus, it indicates
natural wellbeing of an average individual (Mankiw). Countries with very high GDP level does
not indicate that they would have very high GDP per capita as it is dependent on the population
size.
However, similar to GDP, the GDP per capita is a measure of only economic growth per
person, and it does not measure the overall development of a nation, which also includes the
quality of life. GDP per capita relies heavily on the monetary values, and not on the aspects
required for better quality of life. There is a difference between economic growth and
development. While economic growth refers to the increase in the total output of a nation,
economic development addresses improvement in overall quality of life of people, through better
health and education, lifespan, mortality rate, better environment to live, cost and standard of
living etc. (Nnadozie and Jerome). The Human Development Index (HDI) measures multi-

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dimensional aspects of development of a nation through education, health and standard of living,
measured by Gross National Income (GNI) per capita (Hdr.undp.org).
Therefore, it can be said that while GDP per capita indicates the level of wealth per
person in a nation, which is definitely a measure of economic growth, it does not address the
other development indicators, like, education, health and standard of living. These are measured
by HDI. When the GDP per capita of an economy grows with a steady population, it may be
attributed to the technological progress, which is again an outcome of better education. Thus, it
can be said that neither GDP per capita nor quality of life is the single true measure of economic
development of nation.

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Answer 2
China is the largest economy in the world, and the most populous nation with more than
1.3 billion population. In the late 1970s, the Chinese economy started economic reforms and
there has been structural shift in the economy from agricultural economy to industrial economy.
During the period of 1979 to 1993, the GDP of China grew massively with an average rate of
9.3%, while the growth rate of the world economy during that period was only 2.6% (Kong,
Osberg and Zhou). The development model of China was a combination of rapid and extensive
industrialization in the economy, with military modernization and political authoritarianism.
Over the years, China has taken the position of the manufacturing giant of the world and due to
the dominance on the global manufacturing industry, China has benefited majorly from
international trade. Moreover, the huge population is beneficial for providing cheap labor, which
keeps the cost of production low, creating comparative advantage for the country.
According to the experts, China is moving towards achieving the superpower status in the
global economy. The significant economic growth of China has fueled the growth in
international economy also, and most importantly, China’s growth has reshaped the Asian
economy over the past few decades. On one hand, China’s growth has created greater
opportunities for its trading partners across Europe, Asia and North America, in terms of imports
and exports, and on the other hand, the increasing dependency of the trading countries for
products like oil, and manufactured goods is raising China’s dominance further on the global
economy (Christiansen and Maher). The level of FDI from China has also increased substantially
over the past two decades, creating scopes for further international trade and dominance on the
world economy. For example, Chinese FDI to Europe grew by 37% in 2015 (Christiansen and

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Maher). EU is the top destination for exports from China and second largest supplier of goods
after the USA. In the period between 2005 and 2016, China’s investment to Europe was around
$200 billion, and $134 billion in the USA (Liang). China’s growth has therefore has a positive
impact on the Europe through economic interdependence involving investment, employment
opportunities, and growing level of trade.
On the other hand, growth of China as a superpower has been affecting the trade
relationships with the USA. Since 2018, China and USA have become involved in US-China
trade war based on allegations by the USA on China for unfair trading practices and unfair tariffs
on imports. Due to this trade war, the level of imports and exports of China is negatively affected
and Chinese economy has been facing a slowdown with a currency depreciation, which in turn
has been affecting economic growth of China’s and USA’s trade partners (Swenson and Woo).
The ongoing trade war between USA and China has created concern among the emerging
economies of Asia. The merchandise export from China to the rest of Asia increased from
around 15% in 2001 to 30% in 2017 and growth of China has also pushed the growth of the
Asian economies by raising the export share of Asia in the world economy from 23% in 1990 to
over 37% in 2017. China has also served a key role in the Asian global value chains by creating
centers for processing and assembling the inputs and the re-exporting the global market (Lau,
Chan and Nguyen). Thus, it can be said that growth of China has positively affected the growth
of the Asian countries as well as for the European countries through exports, imports and
investment. However, the trade war with the USA is affecting the trade of China with other
major trading partners.

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Answer 3
Costa Rica is a developing country located in the Central America. The economy is quite
stable in this country. The major sector of the economy is the service sector contributing around
75.9% in the GDP, followed by 18.6% contribution by the industrial sector and 5.5% by the
agricultural sector. In 2018, the GDP of Costa Rica was US $60.13 billion (Lawton). For
investing in an automobile assembly facility in Costa Rica with a local partner, there can be
reasons such as, highly educated human resources with 95% literacy rate; large amount of FDI in
hi-tech manufacturing; a strategic geographic location, beneficial for shipping of products to
both the North and South American continents; trade openness allowing the country to take
advantage of various free trade agreements; political stability and favorable business
environment (Vokoun and Daza Aramayo).
For a business relationship with a local partner for establishing an automobile assembly
facility, the global manufacturer will opt for an overseas assembly or mixing business in Costa
Rica. In this venture, the car manufacturer will provide the supplies of car parts in a completely
knocked down condition and the new assembly unit will assemble those parts to manufacture the
final car. This process is common in car manufacturing to avoid the import restrictions, higher
rate of tariffs and the freight charges (Guerrero and Itoh). The car manufacturer will not exercise
great control over the operation, they will only provide the designs and knowledge transfers to
the local employees in Costa Rica. The level of control over the operation and export will be
moderate so that the supply is not disrupted.
It will exercise control on the technical division of the operation that involves designing,
security features, knowledge transfers through trainings, meeting the technical requirements and

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the monthly production target and on the financial operations. For other business operations,
such as, human resource management, and accounting, the control will be given to the partner.

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References
Christiansen, Thomas, and Richard Maher. "The Rise Of China—Challenges And Opportunities
For The European Union". Asia Europe Journal, vol 15, no. 2, 2017, pp. 121-131. Springer
Science And Business Media LLC, doi:10.1007/s10308-017-0469-2. Accessed 7 Apr 2020.
Guerrero, David, and Hidekazu Itoh. "Ports, regions and manufacturing systems: Automobile
manufacturing in Kyushu, Japan." Case studies on transport policy 5.2 (2017): 332-341.
Hdr.undp.org. "Human Development Index (HDI) | Human Development
Reports". Hdr.Undp.Org, 2020, http://hdr.undp.org/en/content/human-development-index-hdi.
Kong, Nancy, Lars Osberg, and Weina Zhou. "The shattered “Iron Rice Bowl”: Intergenerational
effects of Chinese State-Owned Enterprise reform." Journal of health economics 67 (2019):
102220.
Lau, Yui-yip, Eve Man Hin Chan, and Hong-Oanh Nguyen. "The Dynamics of T&C Export
Performance Between China and Other Asian Countries: Implications for BRI
Development." Belt and Road Initiative–Collaboration for Success. Springer, Singapore, 2020.
1-25.
Lawton, Philip. "Age Dependency Ratios and GDP Growth in Developing Countries." Available
at SSRN 3370526 (2019).
Liang, Guoyong. "China goes global: outward investment." Handbook on China and
Globalization. Edward Elgar Publishing, 2019.
Mankiw, N. Gregory. Principles of microeconomics. Cengage Learning, 2020.

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Nnadozie, Emmanuel, and Afeikhena Jerome. "Definition and measurement of growth and
development." African Economic Development (2019): 39-56.
Swenson, Deborah L., and Wing Thye Woo. "The Politics and Economics of the US-China
Trade War." Asian Economic Papers 18.3 (2019): 1-28.
Vokoun, Marek, and Lourdes Gabriela Daza Aramayo. "Business environment index for
developing countries: The case of Latin America." Latin American Business Review 18.2 (2017):
121-137.