International Competitiveness

Question 1

What is international competitiveness?

Answer 1

The ability of a country to sell its goods/services abroad.

Question 2

What are the 5 factors influencing international competitiveness?

Answer 2

1) Productivity.
2) Regulation relative to competitors.
3) Rate of inflation relative to competitors.
4) Relative unit labour costs.
5) The exchange rate.

Question 3

What is productivity?

Answer 3

A measure of the output per worker, per unit of time.

Question 4

How does productivity influence international competitiveness?

Answer 4

If a country’s productivity falls relative to that of competitors, unit costs will increase, worsening competitiveness.
Higher productivity = improved competitiveness.

Question 5

What is unit labour cost?

Answer 5

The cost of labour required to produce one unit of output.

Question 6

How do relative unit labour costs influence international competitiveness?

Answer 6

A rise in labour costs in a country (e.g. due to a rise in the national minimum wage) will lead to higher export prices, and reduced competitiveness. Vice versa.

Question 7

How does regulation influence international competitiveness?

Answer 7

If a government decides to increase the regulation on business, then firms’ costs will rise. This cost will be passed on to consumers through higher prices, reducing competitiveness.

Question 8

How does the inflation rate influence international competitiveness?

Answer 8

If inflation increases, the prices of goods and services in an economy will rise. This means that these products are less competitive in international markets.

Question 9

What is the main benefit of international competitiveness?

Answer 9

An internationally competitive market will enjoy export-led economic growth, improving employment and the balance of payments, whilst providing the economy with a positive multiplier effect.

Question 10

What are 2 drawbacks to international competitiveness?

Answer 10

1) Exchange rates: A current account surplus can lead to a rise in the value of the currency, damaging international competitiveness as exports are more expensive.
2) As a country becomes more developed, land, property, labour, and rent become more expensive as a country becomes more developed.