4.1.9 - International competitiveness

• Measures of international competitiveness:

  • Relative unit labour costs
  • Relative export prices
• Relative unit labour costs: Unit labour costs are total wages divided by real output: the cost of employing workers for each unit of good
• Relative export prices: This is the price of UK exports compared to the exports of 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.
• Factors influencing international competitiveness:

  • Exchange rates
  • Productivity
  • Regulation
  • Investment
  • Taxation
  • Inflation
  • Factors of production
• Factors influencing international competitiveness:

  • Exchange rates: A rise in the pound will cause exports to become more expensive, and thus make UK goods less competitive as their price changes
• Factors influencing international competitiveness:

  • Regulation: High levels of regulation slow down business decisions, making them less adaptable to changes in the global market. It also increases their cost of production. Therefore, regulation reduces competitiveness because of higher costs and slow decision making
• Factors influencing international competitiveness:

  Investment: Investment in infrastructure improves productivity and ensures firms can deliver and produce their product reliably, cheaply and efficiently. Investment in research and development allows firms to develop new products, which increases competitiveness as other countries won’t have these products, and new technology, which reduces costs and increases efficiency.
• Factors Influencing International Competitiveness:

  • Cost factors:
  • Labor Costs: Lower labor costs can improve competitiveness.
  • Production Efficiency: Efficient production processes reduce costs.
  • Exchange Rates: Favorable exchange rates can make exports more competitive.
• Factors Influencing International Competitiveness:

  • Quality and Innovation
  • High product quality and continuous innovation can enhance competitiveness.
  • Investing in research and development (R&D) can lead to competitive advantages.
• Factors Influencing International Competitiveness:

  • Infrastructure and Logistics:
  • Efficient transportation, communication, and infrastructure support competitiveness.
  • Shortened supply chains can reduce costs and improve delivery times.
• Factors Influencing International Competitiveness:

  • Government Policies:
  • Favourable trade policies, tax incentives, and regulations can boost competitiveness.
  • Stable political environments and legal systems are crucial
• 1. Benefits of Being Internationally Competitive:

  • Increased Exports: Competitive countries can sell more goods and services abroad, boosting economic growth.
  • Job Creation: Export-oriented industries often create jobs, reducing unemployment.
  • Higher Standards of Living: International competitiveness can lead to higher incomes and improved living standards for citizens.
  • Foreign Direct Investment (FDI): Competitive environments attract foreign investment, leading to economic development.
• 1. Problems of Being Internationally Uncompetitive:

  • Trade Deficits: Uncompetitive countries may import more than they export, leading to trade imbalances.
  • Economic Decline: A lack of competitiveness can result in declining industries and economic stagnation.
  • Unemployment: Uncompetitive industries may shed jobs, leading to high unemployment rates.
  • Income Inequality: A lack of competitiveness can exacerbate income inequality as some industries decline while others thrive.
• In summary, international competitiveness is crucial for a country's economic health and prosperity. Measures such as relative unit labor costs and relative export prices help assess a nation's competitive position. Factors influencing competitiveness encompass cost considerations, quality and innovation, infrastructure, and government policies. Being internationally competitive brings numerous benefits, while a lack of competitiveness can lead to economic challenges and disparities.