4.3.4 International Competition Flashcards
What are the measures of international competitiveness?
- Relative Unit Labour Costs
- Relative Export Prices
- Export Prices Compared to Import Prices
How are relative unit labour costs a measure of international competitiveness?
Unit labour costs are total wages divided by real ouput. Lower unit labour costs means more can be produced for the same wage, so same cost of production, so lower prices per good
How are relative export prices a measure of international competitiveness?
The lower our export prices are than others, the more internationally competitive
How are export prices compared to import prices a measure of competitiveness?
If export prices are rising significantly faster than import prices it is a sign that the country is likely to be losing international competitiveness
What are the factors influencing international competitiveness?
- Exchange Rates
- Productivity
- Wage/Non-Wage Costs
- Regulation
- Quality
- Research and Development
- Taxation
How are exchange rates a factor affecting international competitiveness?
Increase in currency value decreases competitiveness because goods cost more foreign currency
What factor determines to what extent exchange rates have an effect on international competitiveness?
Price Elasticity of Demand; the more price elastic the demand for a good, the more a change in exchange rates will affect its competitiveness
How is productivity a factor that influences competitiveness?
Rises in productivity relative to other main trading partners increases competitiveness because goods will be cheaper than other countries
How are wage/non-wage costs a factor influencing competitiveness?
Higher wage and non-wage costs (pension, tax of employment) increase price so decrease competitiveness
What factors determine to what extent wage and non-wage costs influence competitiveness?
Whether firms are willing to change their profit margins and potential increase in labour productivity
How does regulation affect competitiveness?
More regulation usually means increase in production cost so higher prices
How does research and development affect international competitiveness?
long term: Increase competitiveness due to quality and cost of production
short term: Increased costs lower competitiveness unless willing to reduce profit margins
How does taxation affect international competitiveness?
Low tax reduces production costs and encourages investment and innovation
What are Government Policies that can improve international competitiveness?
- Supply Side Policy
- Exchange Rate Policy
- Controlling Inflation and Macroeconomic Stability
How does Supply Side Policy improve international competitiveness?
Improvements in education and health lead to higher labour productivity. Deregulation leads to more competition and lower costs.
Tax incentives on investment increase capital intensive production
