4.1.9 - international competitiveness

Question 1

What is international competitiveness

Answer 1

International competitiveness measures the relative cost and value of a countries exports.

Question 2

meausres of international competitiveness

Answer 2

o relative unit labour costs (total labour costs/output)
o relative export prices

Question 3

exchange rate affecting international competitivness

Answer 3

• exchange rate: A rise in the pound will cause exports to become more expensive,
  and thus make UK goods less competitive as their price changes. However, this
  depends on the elasticity the good and the reaction of the firms as explained in 4.1.8.

Question 4

productivity affecting international

Answer 4

A rise in productivity will cause a rise in the UK’s competitiveness because costs are lower and so prices will fall. Labour productivity is important.

Question 5

How does regulation affect IC

Answer 5

High levels of regulation slow down business decisions, making them
less adaptable to changes in the global market. It also increases their cost of
production. Therefore, regulation reduces competitiveness because of higher costs
and slow decision making.

Question 6

How does investment affect IC

Answer 6

Investment in infrastructure improves productivity and ensures firms can
deliver and produce their product reliably, cheaply and efficiently. Investment in
research and development allows firms to develop new products, which increases
competitiveness as other countries won’t have these products, and new technology,
which reduces costs and increases efficiency.

Question 7

How does taxation affect IC

Answer 7

• High levels of taxation reduce investment and so cause a reduction in international competitiveness in the long term. It can also reduce incentives for individuals to take risk, and thus reduce innovation
• low income tax incentivises worker to work more becuase they eanr greater after tax income comapred to working same amount previously and can attract foreign skilled workers

Question 8

How does inflation affect IC

Answer 8

Low levels of inflation increase competitiveness since UK goods increase
in price by less than goods in other countries and so they become more competitive
over time

Question 9

How does factors of production affect IC

Answer 9

A country with a lot of good quality factors of production will be able to produce more and better quality goods than a country which has limited or poor quality resources

Question 10

How does openness to trade affect IC

Answer 10

This means trade barriers will be low and so other countries are likely to have low barriers on goods coming from the UK, meaning it is easier and cheaper to export. It also means that firms inside the UK will not suffer from high costs of production due to import barriers

Question 11

Key factors affecting international competitiveness

Answer 11

• relative wage and non wage costs (pensions, sick pay, maternity pay, taxes paid by employers)
• relative exchange rates
• relative rates of inflation
• relative level of regulation
• relative labour productivity
• relative levels of investment
• quality of goods and innovation (Rand D)
• gov policies on tax, trade, infrastructure investment (link back to regulation here)

Question 12

What is ULC determined by

Answer 12

productivity of labour, skills, strict labour regulation

Question 13

how does labour market flexibility affect IC

Answer 13

• If the labour market is flexible, this will improve competitiveness as
  businesses will be able to move labour in response to changes in demand and
  prevent unnecessary wage rises
  + (a lack of flexibility would mean higher wages had to be offered to get people to move jobs).
• This keeps costs and prices low. Moreover, flexible and efficient managers will be able to manage change within the company and adapt production when demand for products changes
• flexible working arragements: zero hour cotracts, part time workers to minimise costs

Question 14

Econ plus dal factors affecting ic

Answer 14

ULC
labour flexibility
labour skills
tax regimes
innovation - production becomes more efficent, so better speed, lwoer costs
infrastructure - atrracts FDI, quicker cheaper prod
regulation - lower prcies and attarcts FDi , fewer inefficiencies
economic stability

Question 15

Using relative ULC as a measure of international competitiveness

Answer 15

• Relative unit labor costs compare the cost of labor in one country to another.
• It is calculated by dividing the average wage in one country by the productivity of labor in that country, then comparing it to the same ratio in another country.
• A lower relative unit labor cost indicates greater competitiveness, as it suggests that a country can produce goods and services at a lower labor cost.

Question 16

Using relative export prices as a measure of international competitiveness

Answer 16

• Relative export prices compare the prices of a country’s exports to those of its competitors.
• It involves analyzing the price levels of similar products produced in different countries.
• Lower relative export prices indicate greater competitiveness, as it means a country’s products are more attractively priced in international markets

Question 17

Benefits of being internationally competitive

Answer 17

• Increased Exports: Competitive countries can sell more goods and services abroad, boosting economic growth.
• Job Creation: Export-oriented industries often create jobs, reducing unemployment.
• Higher Standards of Living: International competitiveness can lead to higher incomes and improved living standards for citizens.
• Foreign Direct Investment (FDI): Competitive environments attract foreign investment, leading to economic development.

Question 18

Problems with being internationally uncompetitive

Answer 18

• Trade Deficits: Uncompetitive countries may import more than they export, leading to trade imbalances.
• Economic Decline: A lack of competitiveness can result in declining industries and economic stagnation.
• Unemployment: Uncompetitive industries may shed jobs, leading to high unemployment rates.
• Income Inequality: A lack of competitiveness can exacerbate income inequality as some industries decline while others thrive

Question 19

benefits and costs of export led growth

Answer 19

Advantages include stimulating economic growth, creating jobs, and developing new sectors. Disadvantages could be over-reliance on foreign markets, vulnerability to global market fluctuations and potential neglect of domestic industries.

• Exports of goods and services are an injection into the circular flow of income leading to a rise in aggregate demand and an expansion of output. This helps to raise per capita incomes and reduce extreme poverty especially in developing/emerging economies

Question 20

costs of export led growth

Answer 20

• over-dependence on the economic cycles of trade partner countries and vulnerability to external economic and political shocks
• persistent trade surpluses might incite a protectionist response from other nations who feel that the benefits of trade have been unequally skewed in favour of exporting countries.
  (Huge trade imbalances remain a big concern in the global economic system)
• Production capacity allocated to supply goods and services for export cannot be put to use meeting domestic needs and wants. There might be a consequent dip in domestic living standards unless the country is also prepared to import goods and services using the revenue generated from exporting
• Rapid export-led g might = DP inflation and higher int rates. High relative inflation might then have the effect of making export industries less competitive in overseas markets and domestic producers less price competitive against imports
• Export-led growth might be unsustainable if it contributes extraction of natural resources beyond what is required for long term balanced growth to be maintained. Consider for example the impact of deforestation and over-fishing and degradation of land by industrial-scale farming.