Policies to Improve International Competitiveness

• Competitiveness


  The ability of a nation to compete with other nations in the global economy
• Globalization


  Competing with other nations becomes fiercer
• Competitiveness

  • Price competitiveness of the nation's goods and services
  • Non-price competitiveness of the nation's goods and services
  • Ability of the nation to attract foreign direct investment (FDI)
• Supply-side policies


  Policies used to improve a nation's competitiveness
• Supply-side policies


  • Aim to improve efficiency, productivity, and provide incentives
• Analyzing supply-side policies

  1. Start with the policy

  2. Develop the chain of analysis

  3. Link the policy to improvements in price competitiveness, non-price competitiveness, or ability to attract FDI
• Supply-side policies

  • Government spending on infrastructure (e.g. new roads, bridges, airports)
  • Tax incentives (e.g. lower corporation tax, tax allowances on investment)
  • Deregulation (e.g. reducing unnecessary regulations)
  • Government spending on education (e.g. curriculum reform, adult training, apprenticeship schemes)
• Government spending on infrastructure

  Improves efficiency of doing business, reduces costs, may attract FDI
• Tax incentives (e.g. lower corporation tax, tax allowances)

  Increase retained profits, incentivize investment, improve efficiency and non-price competitiveness, may attract FDI
• Deregulation


  Reduces costs of doing business, improves efficiency, may attract FDI
• Government spending on education

  Improves productivity, reduces unit labor costs, may improve non-price competitiveness
• Supply-side policies have significant costs and opportunity costs
• No guarantee that supply-side policies will work as intended (e.g. companies may not invest retained profits)
• Many supply-side policies take a long time (5-15 years) to have an impact
• Supply-side policies need to be targeted at the specific areas of lack of competitiveness in the nation
• Competitiveness is a relative concept - a nation's competitiveness depends on how it compares to other nations