International competitiveness 4.1

Question 1

Relative unit labour costs

Answer 1

Unit Labour Cost - average costs of labour per unit of output

Cheaper relative unit labour costs = more competitive

Niche market means high unit labour costs can still compete though, e.g. german cars recognised for quality

Question 2

Relative export prices

Answer 2

This is the ratio of one country’s export prices relative to another country, and it is
expressed as an index.
The lower the relative export price, the more competitive the
country.

Question 3

Factors influencing international competitiveness

Answer 3

ability to attract FDI from TNCs (increases growth) e.g. Ireland & low 12.5% corp tax - One of highest gdp per capita

Ability to attract (skilled) labour from abroad

Unit labour costs

Exchange rate

Inflation (low is better)

Question 4

Pros & Cons of being internationally competitive

Answer 4

Pros
Increases AD through more exports,

current account surplus

Greater employment, rise in demand for labour should increase wages as well

Cons
International competitiveness can easily be lost. LEDCs who have benefits due to low labour costs could see this eroded when they experience export-led growth. A current account surplus may lead to a rise in the exchange rate, reducing competitiveness. (not always though e.g. Germany & Singapore)

May become overdependent on overseas countries, thus a recession will impact them greatly. e.g. Mexico real GDP fell 12% 2008-09 due to huge reliance on the US for exports