4.1.9 International Competitiveness

Question 1

International competitiveness?

Answer 1

• Country’s ability to produce goods and services of a quality and price attractive to consumers abroad

Question 2

Measures of international competitiveness?

Answer 2

• Relative unit labour costs
• Relative export prices
• Global Competitiveness Index (GCI)
• Current account of BoP

Question 3

How do exchange rates affect international competitiveness?

Answer 3

• Depreciation/Devaluation = exports relatively cheaper to foreign buyers = export prices more competitive

BUT depends on number of imports domestic firms use in production because import prices ↑ so export prices could ↑ = ↓ competitiveness

Question 4

How does productivity affect international competitiveness?

Answer 4

• ↑ productivity = ↑ output = Managerial/Purchasing EoS = ↓ unit costs = ↓ export prices + ↑ quality = ↑ international competitiveness

BUT ↑ productivity = specialised = labour more skilled = higher wages = higher production costs = less competitively priced exports

Question 5

How does regulation affect international competitiveness?

Answer 5

• ↑ regulation (e.g. health + safety/employment laws) = ↑ compliance costs (e.g. ↑ breaks/annual leave) = ↑ production costs = ↑ export prices = ↓ international competitiveness

Question 6

How does R+D affect international competitiveness?

Answer 6

• ↑ R+D = ↑ dynamic efficiency = ↑ quality + ↓ price = ↑ competitiveness

Question 7

How does taxation affect international competitiveness?

Answer 7

• ↑ taxation = ↓ profit = ↓ spending on R+D and capital = ↓ dynamic efficiency = ↓ price and quality competitiveness

Question 8

How do workers benefit from international competitiveness?

Answer 8

• ↑ competitiveness = ↑ demand for exports = ↑ derived demand for labour = ↑ employment opportunities
• ↑ competitiveness = ↑ specialisation = ↑ wages = ↑ standard of living

Question 9

How does international competitiveness affect economic growth?

Answer 9

• ↑ competitivness = ↑ exports = ↑ net exports = ↑ AD = ↑ economic growth

Question 10

How does international competitiveness affect current account on BoP?

Answer 10

• ↑ competitiveness = exports > imports = surplus in balance of trade = current account surplus

Depends on other components of current account, relative size of imports

Question 11

Factors that reduce international competitiveness over time?

Answer 11

• Economic development results in higher production costs (especially labour costs)
• Strong export demand causes currency appreciation
• Prone to protectionist measures - Countries with current account deficits use protectionist measures against countries with large current account surpluses