International Competitiveness Flashcards
Definition of international competitiveness
Ability of nation to compete successfully overseas and improve real output and SoL
Calculate unit labour costs
Total labour costs / output
Labour productivity (output per worker) formual
Total output of workers / number of workers
When are higher prices more competitive (2)
Niche market
Quality = German cars
What are relative export prices (3)
Ratio of one country’s export prices relative to another country
Expressed as an index
The lower the relative export price = the more competitive the country
Factors influencing international competitiveness - interest rates
Uk = low interest rates:
Encouraged spending = increased AD and growth
Problem with low interest rate (3)
Increase in AD = demand-pull inflation = UK goods more expensive than elsewhere
This might increase imports = worsen the current account deficit
It can be seen as a deterrent for foreign investors = get a low return on investment
Factors influencing international competitiveness - ability to attract FDI (2)
If a country can attract more FDI = increases their productive capacity
Can help produce long term growth and raise living standards
Factors influencing International comp. - entrepreneurs (3)
Help develop new ideas and stimulate innovation
Keeps a country ahead with technology and gives them an edge in the market = more competitive
London held an AI conference to attract Elon musk + Tesla
Problem with entrepreneurs (3)
Creative destruction
New tech (AI) = job losses in short run
Economist Schumpter says in the long run = new jobs will come up
Factors influencing international comp. - Ability to attract skilled labour from abroad
Might fill a skills gap = IT or biotechnology = improves the quality of the labour force
If there is a skills gaps firms face higher costs
Ability to atatract FDI depends on what (3)
Skills and flexibility of the labour force which could lower unit labour costs
A relatively low tax rate
Stability in the economy and financial system
Factors influencing international comp. - human capital (3)
Limited skills = economy cannot expand its productive potential
More skilled the workforce = the more productive it is
G/S are of a better quality
Factors influencing international comp. - unit labour costs (3)
Unit labour costs rise when wages increase at a faster rate than productivity
China’s large population means wages are generally low
However = the rise of the middle class and consumer spending is pushing wages up
Factors influencing international comp. - ER (3)
Depreciation = exports cheaper = more internationally competitive
If the price of imports increases as a result of a devaluation = the cost of raw materials would increase = damaging to small firms
IMPORTANT = devaluating the currency is not a policy relevant for countries with floating exchange rates = such as the UK
Factors influencing international comp. - flexibility of labour (2++)
Part time and temporary contracts help limit a firm’s costs = lowers unit labour costs
If the labour market is flexible and geographically or occupationally mobile = it can better respond to economic shocks + changes in demand or supply = improve competitiveness
What happened to national minimum wage + why (2)
10% increase
Encourage consumption
Factors influencing international comp. - economic stability (2)
If inflation is low firms are more able to plan their investment and spending because they know what future prices will be
High inflation makes it hard to plan for the future
UK Economic growth = 0.1%
Factors influencing international comp. Low tax (3)
e.g. low income tax
A lower tax rate provides an incentive to earn more = consumers and firms know they will keep more of their income
A low income tax might attract more skilled labour
Factors influencing international comp. - regulation (2)
Excessive regulation (red tape) = hard for firms to invest + raise their average costs of production
Argument for leaving EU
What is Red Tape challenge Est. By uk gov (2)
Aims to simplify regulation for businesses = cheaper and easier to meet environmental targets and create new jobs
Help to encourage investment and innovation so domestic firms can become more internationally competitive
