U3 Global interdependence: International competitiveness Flashcards
Define international competitiveness
The degree to which a country’s goods and services can meet the test of international markets while simultaneously maintaining and expanding the incomes of its people in the long term
What are the factors that affect a country’s competitiveness?
- Relative inflation rates
- Labour productivity
- Wages
- Exchange rate
- Relative interest rates
- World growth
- Domestic growth
How do relative inflation rates affect a country’s international competitiveness?
If Australia’s inflation rate is greater than the inflation rate of trading partners:
- reduced competitiveness of our domestic goods and services
- because it will cost more to buy our goods and services due to the increase in price
- competitiveness of foreign goods increases as they become cheaper relative to ours
If Australia’s inflation rate is less than the inflation rate of trading partners:
- increased competitiveness of our domestic goods and services
- because it will cost less to buy our goods and services due to the decrease in price
- competitiveness of foreign goods decreases as they become more expensive relative to ours
How does labour productivity affect international competitiveness?
How do wages affect international competitiveness?
If wages in Australia are more expensive relative to other countries:
- the cost of wages will be put onto goods and services, making them more expensive to produce
- successful firms will use technology to reduce costs to stay more competitiveness
- causes a structural effect: the replacement of labour units with capital units for a more flexible workforce (maybe cause full time workers to become part time or casual)
How does exchange rate affect a country’s international competitiveness?
How do relative interest rates affect a country’s international competitiveness?
How does world growth affect a country’s international competitiveness?
