4.1.9

Question 1

define international competitivness

Answer 1

the ability of a country or firm to compete in international markets

Question 2

what are the measures of international competitiveness?

Answer 2

• relative unit labour costs
• relative export prices
• global competitve index (GCI)
• current account balance of payments

Question 3

what is relative unit labour cost?

Answer 3

labour cost per unit of output produced. this is determined by
* labour productivity (output per person)
* hourly labour costs (wages and salaries)

relative means it is compared using a common currency

Question 4

what causes relative labour costs to rise?

Answer 4

• appreciation of exchange rate
• labour productivty growth is relativley slower
• wage costs rise relativley higher than in other nations

Question 5

what are some ways in which the government can reduce relative labour unit costs?

Answer 5

• monetary policy aimed at a country depreciation (managed floating exchange rate)
• wage controls (wage freezes ) in the public sector
• supply side measures designed to increase labour productivity

Question 6

what influences relative export prices?

Answer 6

exchange rate
a depreciation in currency would make export prices fall.

Question 7

what are the limitations of using relative labour unit costs as a measure of international competitivness.

Answer 7

• ignores non price factors such as product quality
• also depends on exchnage rate
• could make up for it by having relativley low capital costs, borrowing costs,

Question 8

how does FDI influence international competitivness?

Answer 8

FDI brings
* technology spillovers
* increasingly skilled workforce–> better goods
* improving infrastructure –> lower transport costs. eg: china’s high speed rail network

Question 9

what factors influence a country’s ability to attract FDI?

Answer 9

• corporation tax
• availibility of skilled workers
• currrent infrastructure
• macro economic stability

Question 10

what factors influence international competitivness?

Answer 10

price
* exchnage rates
* ability to attract FDI (kina goes in both)
* labour costs

non-price
* education
* innovation and technology
* barnd reputation and quality

Question 11

what are the benefits of being internationally competitive?

Answer 11

• current account
• employment opportunities
• economic growth
• economies of scale

Question 12

what are the problems with being internationally competitive?

Answer 12

• over reliance on exports
• labour exploitation and poor working conditions
• enviromental damange
• income inequality
• privy to external shocks
• strcutural unemployment