4.1.9: International Competitiveness

Question 1

What are some measures of international competiveness?

Answer 1

• Relative unit labour costs: the cost of employing workers for each unit of good
• A rise in relative unit labour costs in the UK shows that labour costs per unit is rising faster compared to other countries, showing that the UK is becoming less competitive.
• Relative export prices: The price of UK exports compared the UK’s main trading partners.
• A rise in relative export prices means UK export prices have risen more than other countries’ export prices and so the UK has become less competitive.

Question 2

What are the factors which influence international competitiveness?

Answer 2

• Exchange Rates: A rise in the pound will cause exports to be more expensive, causing UK goods to be less competitive. (EV) depends on elasticity of goods
• Productivity: A rise in productivity will cause a rise in the UK’s competitiveness because costs are lower, causing prices to fall
• Regulation: Regulation reduces competitiveness because of higher costs and slow decision making
• Investment: Investment in infrastuctue improves productivity and efficiency; investment in R&D allows development causing increase in competitiveness

Question 3

What are other factors that influence international competitiveness?

Answer 3

• Inflation
• Taxation
• Economic Stability
• Competition and Demand at Home
• Factors of Production
• Openness to Trade

Question 4

What are the benefits of competitveness?

Answer 4

• Current Account Surplus: this allows the country to invest abroad and build a surplus of assets abroad as well
• FDI: leads to increase to a transfer in knowledge skills and technology
• Employment; a rise in demand for labour will lead to a rise in wages
• Economic Growth: Supply side due to investment and improvements in efficiency and demand side due to improvements in X-M.

Question 5

What are the problems with competitiveness?

Answer 5

• This competitiveness may not last in the long run.
• A current account surplus may lead to a rise in exchange rates, reducing competitiveness in the long run.