4.1.9. International Competitiveness

Question 1

What is international competitiveness?

Answer 1

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

Question 2

What two metrics are usually used to measure competitiveness of two countries?

Answer 2

1. Labour costs- Total wages in an economy divided by output. Provides a number that indicates labour cost for each unit of output produced. Can be looked at for two countries to compare which is lower and is therefore more competitive in the international market
2. Export prices- Monitoring export prices provides an insight into whether they are rising or falling over time. If they are rising in 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 3

What factors influence international competitiveness?

Answer 3

1. Exchange Rates- Rise in pounds=exports more expensive=less competitive (depends on elasticity)
2. Productivity-Rise in competitiveness as lower costs=prices fall
3. Regulation-Slow down business decisions=less adaptable+ increases cofp= reduces competitiveness
4. Investment-Improves productivity + reliable+ new products
5. Taxation- High levels of tax= reduces investment= reduction in competitiveness
6. Inflation-Low levels= increase competitiveness
7. Economic stability- Country not stable= reduce competitiveness overtime
8. Flexibility- If flexible= improve competitiveness
9. Competition and demand at home- Economies of scale
10. Factors of production- good quality FofP= better quality goods
11. Openness to trade- Trade barriers low= easier and cheaper to export= no high costs of production

Question 4

What factors influence international competitiveness? (relative)

Answer 4

1. Relative unit labour costs- Rise in productivity levels of workers relative to competitors will lower the production cost per unit and increase competitiveness. Decrease or stagnation in productivity will worsen competitiveness
2. Relative wages and non-wage costs- Increase in labour costs relative to other countries likley make exports more expensive. Increase in non-wage costs such as pensions are likely to reduce output thus making exports less competitive. Decreasing wage and non-wage costs have the opposite effect
3. Relative rate of inflation- Inflation raises price of goods/services in an economy. If it increases in UK relative to other countries then foreign buyers pay more for exports and worsen competitiveness. Decreasing inflation has the opposite effect
4. Relative level of regulation- Gov regulation tends to raise cost of production meaning export prices rise and competitiveness will worsen. Deregulation may have the opposite effect

Question 5

What are some benefits of international competitiveness?

Answer 5

1. Export led growth: Increase in exports= economic growth
2. Unemployment decrease: Economic growth= increase in employment, incomes and wage growth
3. Current account surplus: Exports likely greater than imports and gov doesn’t have to put any policies in place
4. Increased overseas FDI: Provides finance for firms to invest overseas
5. Standards of living improve: Incomes rise with economic growth

Question 6

What are some problems of being internationally uncompetitive?

Answer 6

1. Unemployment increase
2. Current account deficit
3. Decreased overseas FDI
4. Worse standards of living
5. No economic growth
6. Government policies