4.1.9 International competitiveness

Question 1

What are the 3 main measures of international competitiveness?

Answer 1

1) Export prices - the lower the export prices, the more competitive an economy is
2) Relative unit labour costs -Lower unit labour costs -lower costs of production - SRAS will shift right; price level of goods fall – exports more competitive
3) Global competitiveness index - 2017/18 rankings Switzerland ranked top

Question 2

3 Factors influencing international competitiveness?

Answer 2

1) Exchange rates – Strong exchange rate - exports more expensive – less competitive. Depends on PED
2) Wage & non-wage costs – higher minimum wage (UK £8.21 April 19) – costs of production increase, SRAS shifts left - price level of goods increases – less competitive. Depends on labour productivity
3) Supply-side policies – policies that shift LRAS right may lead to decrease in price level/improvement in quality of goods – makes a country more competitive e.g. low corporation tax (2020 17% UK) or deregulation (firms more efficient)

Question 3

Benefits of being internationally competitive?

Answer 3

• Current account surplus
• FDI: competitive countries attract FDI – foreign firms want to use competitiveness to their advantage by buying firms in the competitive country
• High employment – jobs are created due to demand for exports – LRAS increases as quantity of labour increases