4.1.9 International Competitiveness

Question 1

International competitiveness

Answer 1

Refers to how well a country’s products compete in international markets.
Competitiveness can change over time.

Question 2

The two metrics used to make a comparison between the competitiveness of two countries

Answer 2

1. Relative unit labour costs
2. Relative export prices

Question 3

Relative unit labour costs

Answer 3

The total wages in an economy divided by output. This provides a number that indicates the labour costs for each unit of output produced. It is then possible to look at the relative unit labour cost for the UK compared to France. If it is lower then the UK is more competitive in the international market

Question 4

Relative export prices

Answer 4

Monitoring export prices provides insight into whether they are rising or falling over time. If they are rising in the UK relative to other countries, then the UK is becoming less competitive. If they are falling in the UK, it is becoming more competitive.

Question 5

How does the relative unit labour costs influence international competitiveness

Answer 5

A rise in productivity levels of UK workers, relative to their competitors, will lower the production cost per unit and increase competitiveness.
A decrease or stagnation in productivity, relative to their competitors, will worsen competitiveness.

Question 6

How do relative wages and non-wage costs influence international competitiveness

Answer 6

Increase in labour costs, relative to other countries, are likely to make exports more expensive as the costs of production have increased resulting in a worse level of competitiveness
Increase in non-wage costs such as pensions or social security taxes paid by the employer are likely to reduce output or raise costs of production, making exports less competitive
Decreasing wage and non-wage costs have the opposite effect

Question 7

How does the relative rate of inflation influence international competitiveness

Answer 7

Inflation raises the price of goods/services in an economy
If inflation increases in the UK, relative to other countries, then foreign buyers pay more for the exports they purchase and this worsens competitiveness
Decreasing inflation has the opposite effect

Question 8

How does the relative level of regulation influence international competitiveness

Answer 8

Government regulation tends to raise costs of production as it sets standards/requirements that firms have to meet
Increased costs of production mean that export prices are likely to rise and competitiveness will worsen
Deregulation may have the opposite effect

Question 9

Benefits of international competitiveness

Answer 9

1. Increased export leading to economic growth
2. Unemployment decreases
3. Current account surpluses
4. Increases overseas FDI
5. Standards of living improve

Question 10

Problems caused by being internationally uncompetitive

Answer 10

1. Reverse of benefits
2. Government policies: with a current account deficit and a lack of international competitiveness, governments will focus more of their resources on gaining ground (E.g. more spending on supply-side policies)
   Any policy action creates opportunity costs and trad-offs.