international competitiveness

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  • Created on: 31-03-13 10:29
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INTERNATIONAL
COMPETITIVENESS.
DEFINITION
International competitiveness is the degree to which a
country can, under free and fair market conditions, meet the
test of international markets, while simultaneously maintaining
and expanding the real incomes of its citizens.
A nation's competitiveness depends primarily on keeping
productivity growth rates equal to or greater than those of its
major competitors. Productivity growth rate is directly related
to a nation's rate of investment on innovation (i.e. R & D).
Measuring International
Competitiveness
1.Relative Export Prices
If a country's exports become more expensive than other
countries, this is a decline in competitiveness. To determine this
we can use the following method:
index of Export Prices
index of Import Prices

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Page 2

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Productivity and Unit Costs of Production
Annual growth in UK labour productivity.
If there is an increase in relative productivity, meaning industry can
produce more with lower costs then UK will become more
competitive.…read more

Page 3

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This graph shows that between 1990 and 2005, UK labour
productivity increased at a faster rate than the UK. This helped the
UK to improve their relative competitiveness.
3.…read more

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This is a rough guide to international competitiveness. If the
current account improves then the value of exports has increased
faster than imports, suggesting an improvement in
competitiveness.
The persistent UK current account deficit, suggests a decline in
competitiveness.
However, the current account is also affected by the demand for
imports.
Factors that determine international
competitiveness.
1.…read more

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For example, in the post
war period Japan and Germany had relatively lower inflation rates
than major competitors, this helped them to become more
competitive.
This graph of relative inflation rates showed that during the period
shown, inflation in Greece fell from close to 5% to below 2%. This
suggests that Greece will have become slightly more competitive in
this period.
2. Productivity
Productivity is a measure of output per input. The most common
measure would be labour productivity.…read more

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Higher
labour productivity is the key to increasing competitiveness and
living standards at the same time.
German vs Italian labour productivity.
During this period, Italian labour productivity growth has tended to
lag behind Germany, leading to lower competitiveness of Italian
exports.…read more

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This shows labour productivity index for UK and Germany.
Between 1990 and 2005, Germany labour productivity increased
25 base points. UK labour productivity increased by 35 base
points. Showing that the UK had faster improvements in labour
productivity during this period.
3. Exchange Rate
Movements in the exchange rate will determine competitiveness.
For example, a sharp depreciation will make exports cheaper and
more competitive. An increase (appreciation) in the exchange rate,
makes the foreign currency price more expensive.…read more

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China has been accused of exchange rate manipulation.
China buys large quantities of US securities, this causes an
increase in the value of the dollar and helps to keep the Yuan
undervalued. Therefore, this helps Chinese exports to be more
competitive and explains the large Chinese current account surplus
Government has used supply side policies to increase productivity.
E.g. education and training.
However, there is a limit to what the government can do to
increase productivity. Increased productivity can be due to other
factors.…read more

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See: EU Competitiveness
4. Tax Rates
Tax rates on labour and corporations will be a factor in determining
competitiveness. For example, higher labour taxes will increase the
unit cost of labour faced by firms, leading to lower
competitiveness.
5. Cost of Doing Business
It is argued that countries with more labour market regulations and
regulations about doing business will have higher costs and lower
competitiveness. For example, the difficulty in gaining planning
regulations to expand a factory.…read more

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Norway
7. United Kingdom
8. South Korea
9. Iceland
10. Ireland
6. Infrastructure
A key factor in determining competitiveness is the cost of
transport. For example, some argue the UK's competitiveness is
undermined by bottlenecks in transport, such as limited airport
capacity in London and traffic jams on major roads.
Benefits of Improving International
Competitiveness
1. Exports relatively cheaper leading to higher demand for exports.
2. Higher exports will help increase aggregate demand and economic
growth
3.…read more

Comments

davidsalter

This contains 11 readable pages explaining what is for many a trickier part of the unit 3 exam. It can be adapted for student's own use eg made into a mind map.

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