International competitiveness

Question 1

what is a country’s international competitiveness?

Answer 1

its ability to sell its goods and services in both domestic and international markets at a price and quality that is attractive in those markets

Question 2

What are the 2 general ways competitiveness be measured?

Answer 2

• price factors

- non price factors e.g. quality, design, reliability, availability

Question 3

What measures exist for international competitiveness?

Answer 3

• relative unit labour costs (expressed as an index number)
• relative productivity measures e.g. output per worker per hour worked
• composite indices e.g. global competitiveness index produced by the World Economic Forum.
• import penetration ratio
• export sales ratio

Question 4

What are the main factors influencing international competitiveness?

Answer 4

• Real Exchange rates: if rate falls then competitiveness will increase
• wage costs: higher wage costs usually mean higher prices, as they are most important CoP
• non-wage costs e.g. taxes on employment, regulations (environmental, health and safety, anti-discrimination)
• labour productivity: usually measured as output per worker per hour (influences CoP)

Question 5

What is the formula for real exchange rates?

Answer 5

(nominal ER)x(domestic price level)/foreign price level

Question 6

What are the main determinants of labour productivity

Answer 6

• education and training
• human capital (knowledge and skill of workforce)
• amount and quality of capital equipment per worker
• R&D - could lead to technological advances ∴ productivity advances
• infrastructure
• labour market flexibility i.e. ease of hiring/ firing workers, willingness of workers to work part-time/ flexible contracts, strength of trade unions

Question 7

What are the main measures and policies to increase international competitiveness?

Answer 7

For firms:
- investing in new capital equipment to inc. productivity
- improve design/ quality of goods through R&D
For governments, supply-side policies include:
- measures to increase occupational mobility e.g. education, training schemes
- macroeconomic stability e.g. low stable inflation rate
- public sector reform to reduce red tape (reducing X-inefficiency)
- gov. investment to improve infrastructure
- privatisation
- incentives for investment e.g. tax breaks if firms use profits for investment
- introduce policies to encourage FDI

Question 8

Why is international competitiveness significant?

Answer 8

• fall would be reflected in a deterioration of trade in goods balance of BoP
• in turn lead to unemployment rises (especially in industries where exports are significant)
• fall in exports could have negative multiplier effect on GDP, reducing econ. growth

Question 9

What is the terms of trade?

Answer 9

ratio of export prices to import prices

Question 10

What is the import penetration ratio?

Answer 10

ratio of % of imports of product to home demand

Question 11

What is the export sales ratio?

Answer 11

ratio of % of exports of product to total manufacturers sales