- 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
2. Productivity and Unit Costs of Production
If there is an increase in relative productivity, meaning industry can produce more with lower costs then UK will become more competitive.
3.Current account / Balance Of Payments
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. Relative Inflation
If the inflation rate is relatively lower than other countries, then over time that country becomes more competitive because its goods will be increasing at a slower rate. 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.
Productivity is a measure of output per input. The most common measure would be labour productivity. For example, with improved technology and education, a country can enjoy higher labour productivity and…