ECON 230: Milestone 3 (Coca-Cola)

Milestone 3

Sarah Brown

Department of Business and Leadership, Regent University

Dr Jeff Bajah

ECON 230 Macroeconomics

September 30, 2022

Introduction

Coca-Cola is an internationally acclaimed company. Gaining the majority of their profit from the United States, their home country, and Mexico, one of their key markets, the company's growth is impacted by the economic condition of both countries. The structure of each country's respective banking system and their implementation of fiscal policies have noticeably contributed to the current economic growth of Coca-Cola. Consistently expanding as a widely successful corporation, Coca-Cola, like any other company, is susceptible to the repercussions of economic shifts in its home country and key market.

Impact of National Banking Systems on Coca-Cola

The Federal Reserve System, or “the Fed,” is the United States’ central banking system. Established by Congress to provide the US with a stable, safe, flexible monetary and financial system, the Federal Reserve System has been in use since 1913 (The Fed - What Is the Purpose of the Federal Reserve System? 2022, para 1). As a US-based company, Coca-Cola operates under the structure of the Federal Reserve System and is directly impacted by its policies. The Fed directly affects the economic well-being of the United States as its policies can either benefit or harm things such as employment and inflation. The Federal Reserve System has an impact that reaches beyond general economic concepts. The federal funds rate, controlled by the Fed, is the rate banks pay for overnight borrowing in the federal funds market. When the rate is low and comparatively cheap for people to borrow money, households are generally more likely to spend more on goods and services. More spending means companies like Coca-Cola gain more profit. An increase in profit allows for expansion in product lines and employment rates, contributing to overall economic growth. This policy, the federal funds rate, is just one example of how policies enacted and enforced by the Fed affect a company’s economic growth. Mexico, Coca-Cola’s key market, operates under its central bank system, Banco de México.

Similarly to the Federal Reserve System, Banco de México’s main objective is to maintain a healthy, stable economy in Mexico. The system’s official website states that “low and stable inflation” is its top priority (Banco de Mexico, 2022, para 1). The effects of Banco de Mexico on Coca-Cola’s economic growth are not as direct as the Federal Reserve System’s but have a noticeable impact nonetheless. As the Banco de Mexico establishes and adjusts policies, it directly affects the economic health in Mexico and indirectly affects Coca-Cola as a good widely sold in Mexico.

Affects of Fiscal Policies in the US on Coca-Cola

Fiscal policy is defined as “Federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.” (Cowen & Tabarrok, 2020, chapter 37) Fiscal policies affect economic conditions such as aggregate demand for goods and services, inflation, employment, and economic growth. Post-covid era fiscal policies have sought to minimize the financial harm produced by the pandemic. The adjustment of fiscal policies impacts the economic development of Coca-Cola. For instance, the fiscal stimulus policies implemented after the COVID-19 pandemic had a significant role in mitigating dropping consumption levels of goods during the lockdown period and boosting the consumption of goods during economic mobility. This fiscal policy has helped the Coca-Cola company grow by supporting higher levels of goods consumption. While the company experienced an 11.4% decline during the peak Covid period, 2020, it was able to reach a 17.09% increase in the following year, 2021 (CocaCola Revenue 2010-2022 | KO, n.d.). While this regaining of growth cannot be entirely attributed to the fiscal stimulus policies, it is worth noting the significant improvement since the issue date of the first stimulus checks on December 31, 2020.

Mexico’s Fiscal Policies in Relation to Coca-Cola’s Economic Growth

Mexico’s use of fiscal policy through the upcoming implementation of their national budget will impact the country’s overall economic growth and the Coca-Cola company’s growth specifically. While Mexico’s budget reflects an optimistic financial outlook, it does seem to follow the country’s recent economic history. Including new numbers regarding expenses such as national expenditures and pensions, the Mexican budget does show that the policymakers prioritize maintaining stable Gross Domestic Profit and debt levels. Additionally, the 2023 budget shows a projected 9.9% increase in revenue, a 0.8% increase from the expected 2022 revenue increase. This increase can be partly attributed to the fiscal policy changes that produced higher interest rates resulting in higher borrowing costs (Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent, 2022, para 8). Higher revenue overall promotes economic growth amongst many companies. Coca-Cola benefits from these fiscal policies as one of Mexico’s most consumed goods. Thus, by directly impacting the nation's economic well-being, Mexico’s fiscal policies also influence Coca-Cola’s growth.

Conclusion

In conclusion, Coca-Cola has done exceptionally well in adjusting to the economic conditions of both the United States and Mexico in a way that benefits the company’s profitability and overall economic growth. Countries are consistently changing fiscal policies to better their respective economies. By adhering to fiscal policies and making necessary adjustments, Coca-Cola has experienced a consistent increase in profit and economic growth and is expected to continue to do so.

References

Banxico (n.d.). Banco De Mexico. Retrieved September 30, 2022, from https://www.banxico.org.mx/indexen.html

CocaCola Revenue 2010-2022 | KO. (n.d.). MacroTrends. Retrieved September 30, 2022, from https://www.macrotrends.net/stocks/charts/KO/cocacola/revenue

Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth Publishers.

The Fed - What is the purpose of the Federal Reserve System? (n.d.). Board of Governors of the Federal Reserve System. Retrieved September 30, 2022, from https://www.federalreserve.gov/faqs/about_12594.htm

Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent. (2022, February 16). FITCH WIRE. Retrieved September 30, 2022, from https://www.fitchratings.com/research/sovereigns/mexico-budget-gdp-assumptions-optimistic-revenue-forecasts-more-prudent-16-09-2022