4.1.9 International Competitiveness

• International Competitiveness


  The ability of a nation to compete overseas and sustain improvements in real output and living standards
• Measures of International Competitiveness


  -Relative unit labour costs

  -Relative export prices
• Relative Unit Labour Costs


  The cost of labour per unit of output thus makes them more competitive in manufacturing but high prices could compete in a niche market or good quality
• Relative Export Prices


  The ratio of a country's export prices relative to another country
• Factors Influencing International Competitiveness

  -Attract FDI from MNCs

  -Attract entrepreneurs

  -Attract skilled labour

  -Unit labour costs

  -Exchange rates

  -Flexibility of labour

  -Interest rates

  -Innovation

  -Quality and quantity of skills possessed by workers

  -Regulation

  -Tax policies

  -Economic stability
• FDI from MNCs


  This increases productive capacity which helps to increase growth and living standards, but this depends on; the stability of the economy and financial system, tax rates and trade potential
• Attracts Entrepreneurs


  Entrepreneurs stimulate innovation which makes them more competitive
• Attract Skilled Labour


  Improves the quality of the labour force and solves skills gaps which lowers costs
• Exchange Rate


  A depreciation/ devaluation makes exports cheaper but importing raw materials more expensive
• Quantity and Quality of Labour Force


  A highly skilled workforce is more productive and produces higher-quality goods
• Flexibility of Labour


  Part-time and temporary contracts limit a firm's costs and geographical and occupational mobility means markets respond better to shocks
• Economic Stability


  Low and stable inflation means firms can plan their investment and spending to keep costs low
• Tax Policies


  Lower taxes incentivise people to earn more and can attract more skilled workers
• Regulation


  Low regulation encourages investment and innovation as there are lower costs
• Rate of Innovation


  If the proportion of GDP invested in new capital is greater they can develop new tech to become more competitive, but factors like availability, reliability, quality, design and innovation may be more important than price
• Interest Rates


  Low interest rates encourage spending and investment but deters FDI due to low returns and can lead to DP inflation which increases export prices
• Benefits of Internationally Competitive

  -Reduce deficit

  -Gain a positive reputation and make goods more price inelastic

  -Increased profits and economies of scale
• Limitations of International Competitiveness


  -Opportunity cost of investing in education and health spending

  -Opportunity cost of unsuccessful innovation

  -Lower taxes limit public spending

  -Infant industries may struggle to compete

  -Firms profits are eroded which reduces R&D
• The Global Competitiveness Index

  The GCI accounts for:

  • Costs and prices
  • Infrastructure
  • Health
  • Education
  • Technology

  to create a competitiveness rating