Globalisation - How does a country become more competitive

Question 1

Describe some factors which influence competitiveness(6)

Answer 1

Wage costs - If UK wage costs are higher than competitors, then we will be less competitive, especially in labour intensive industries like manufacturing.

Exchange Rate - a devaluation in the exchange rate can provide a temporary increase in competitiveness because UK exports will be cheaper.

Inflation - if inflation is higher in the UK than elsewhere, UK exports will become less competitive. (UK export prices will rise quicker)

Infrastructure - If a country has good levels of infrastructure, e.g. good transport links, it will make it easier to export, thus reducing transport costs and makes the product more competitive

Productivity - increased productivity means that any rise in costs is offset by greater output for each worker

Other costs - e.g. price of raw materials, government regulations and keeping capital up to date - higher costs increases cost of production, leader to higher prices and decreased competivity

Question 2

How can a government increase competitiveness and evaluate these methods(21)

Answer 2

Investments in education and training

• increases labour productivity and makes labour markets more flexible
• Education can take several years to have effect, but is important for increasing long term productivity

Devaluation in exchange rate

• This gives a temporary boost to competitiveness, as exports are cheaper.
• It doesn’t deal with underlying issues of competitiveness such as productivity and wage costs
• Devaluation can also lead to inflation, which undermines competitiveness in long run.

Limiting Wage Growth

• Lower wage costs are key to improving competitiveness in many industries
• It can be difficult for government to limit wages and will keep many workers on low incomes
• it may be better to try to increase labour productivity rather than rely on low wages to increase competitiveness.

Investment in infrastructure E.g. better transport links

• This helps reduce costs for firms and improve productivity in the economy.
• However, It costs money and takes time

Privatisation and Deregulation.
-This aims to increase efficiency from the
effects of competition and the fact the private sector has a greater profit motive.

Low inflation
-Inflation makes UK exports more expensive and less competitive

Incentives for investment

• Investment generates new ideas and industries as well as regenerating existing industries, also positively affect other firms and the economy of the area in which the investment takes place(multiplier effect)
• FDI brings new technology and more jobs

Question 3

What are the benefits of globalisation to the UK(7)

Answer 3

Lower costs due to greater competition and ability to produce in low-cost countries

Sustained economic growth

High levels of FDI which is beneficial to the economy

Rising productivity caused by foreign companies setting up in the UK and bringing with them new methods and ideas

Help UK companies sell overseas

Wide range of products and goods are made available to UK consumers at low prices

Reduction in shortages of skilled labour due to international labour migration

Question 4

What are the costs of globalisation to the UK(6)

Answer 4

Loss of jobs and manufacturing industry due to high costs(wages)
-UK firms moving production abroad

Larger deficit in the current account of the balance of payments

UK is open to risks outside of the control of the government

Environmental problems are caused by the growth of transport

Harder for smaller businesses to establish themselves due to increased competition