4.1.9

• international competitiveness is the ability to compete successfully overseas
• price competitiveness - cheaper goods and services - more competition
• non price competitiveness - brand loyalty - innovation - more competitive
• unit labour costs determines price competitiveness
• unit labour costs = total labour cost / output produced
• productivity leads to output produced increasing and total labour cost to stay the same - unit labour costs decrease
• better skills means that output increases, labour costs stay the same - so unit labour costs decrease
• strict labour regulations causes total labour cost to increase, so unit labour costs increases
• relative export prices are the export of a country's goods in comparison to the export prices of the countries trading partners
• an increase in the relative export price means that the export prices of UK goods have risen faster or fallen less than those of the UK's main trading partners
• factors affecting international competitiveness:

  • exchange rate
  • productivity
  • regulation
  • investment
  • taxation
  • inflation
• a depreciation in the exchange rate - exports will get cheaper - increased demand - more competitive (however this depends on the PED of the good)
• high productivity - low unit labour cost - AD increases - more competitive
• if wage rates are higher than productivity rate - ULC increases - reduced competitiveness
• regulation - promotes unity + investor confidence - more FDIs and investment - more competitive (however, there are extra costs, regulation difficult to enforce in developing countries, and its hard to maintain)
• investment — better tools and technology - lower cost of production
• investment drives innovation
• investment attracts FDIs
• however the effects of investment depend on smart investment choices, economic stability, and the government
• high tax rates deter FDIs - increases compliance costs
• taxation can free resources for innovation and growth - but this depends on government spending
• high inflation - expensive exports - less demand
• business uncertainty discourages investment
• effect of inflation depends on relative inflation rates and monetary policy
• being competitive internationally - current account surplus - allows countries to invest overseas
• competitive economy - attracts inflows of foreign investment - creates more jobs - employment increases international competitiveness - more goods are produced
• Being uncompetitive - low GDP - firms forced to shit down - less investment in education/workforce - forces workforce in low wage industries - difficult to boost economy - economic decline
• a firm will face job losses from cutting their costs - workers will find it hard to find new jobs - structural unemployment - poverty rises - more social welfare programs needed - increases government spending
• being uncompetitive will lead to a trade deficit (importing more than exporting) - currency depreciates - will need to borrow money - will be more vulnerable during financial crises
• being uncompetitive - reduced innovation - less technological advancements - reduces economic diversification