But the issue is: Is it good strategic planning to use the per capita income and consumption data vis-a-vis population size as a basis of forecasting the size of a countrys market? This paper attempts to explore this proposition and to determine whether indeed it is or whether there are other better approaches that can help the international marketer make better decisions in entering a foreign market.
Per capita income is derived from the concept of gross domestic product, which is the standard measure of an economys total output (Baumol and Blinder 2001). But such output only make sense if producers can sell them; therefore the concept of aggregate demand is relevant. Aggregate demand is the total amount that all consumers, business firms, government agencies, and foreigners wish to spend on all of a countrys goods and services. It also depends on consumer incomes, government decisions, and events or developments abroad. Aggregate demand can be broken down into the following:
b. Investment spending. This is the total amount that firms expend on physical assets such as land, factories, machinery and equipment, and inventories. . These assets add to productive capacity, leading to additional demand for goods and services.
By adding up all these components, we are able to obtain the aggregate demand and we can summarize it as the sum of all consumption, investment, government purchases, and net balance of exports and imports. Sommers (1993) and other economists take the view that the total output of an economic system is exactly equal to the total demand in the system, and that the GDP can also be referred to as gross domestic expenditure.
From this aggregate is derived the concept of national income - which is the total income of all individuals in the economy. It is defined as the sum of the incomes that individuals in the economy earn in the form of wages, interest, rents, and profits. It