define international competitivness
the ability of a country or firm to compete in international markets
what are the measures of international competitiveness?
- relative unit labour costs
- relative export prices
- global competitve index (GCI)
- current account balance of payments
what is relative unit labour cost?
labour cost per unit of output produced. this is determined by
* labour productivity (output per person)
* hourly labour costs (wages and salaries)
relative means it is compared using a common currency
what causes relative labour costs to rise?
- appreciation of exchange rate
- labour productivty growth is relativley slower
- wage costs rise relativley higher than in other nations
what are some ways in which the government can reduce relative labour unit costs?
- monetary policy aimed at a country depreciation (managed floating exchange rate)
- wage controls (wage freezes ) in the public sector
- supply side measures designed to increase labour productivity
what influences relative export prices?
exchange rate
a depreciation in currency would make export prices fall.
what are the limitations of using relative labour unit costs as a measure of international competitivness.
- ignores non price factors such as product quality
- also depends on exchnage rate
- could make up for it by having relativley low capital costs, borrowing costs,
how does FDI influence international competitivness?
FDI brings
* technology spillovers
* increasingly skilled workforce–> better goods
* improving infrastructure –> lower transport costs. eg: china’s high speed rail network
what factors influence a country’s ability to attract FDI?
- corporation tax
- availibility of skilled workers
- currrent infrastructure
- macro economic stability
what factors influence international competitivness?
price
* exchnage rates
* ability to attract FDI (kina goes in both)
* labour costs
non-price
* education
* innovation and technology
* barnd reputation and quality
what are the benefits of being internationally competitive?
- current account
- employment opportunities
- economic growth
- economies of scale
what are the problems with being internationally competitive?
- over reliance on exports
- labour exploitation and poor working conditions
- enviromental damange
- income inequality
- privy to external shocks
- strcutural unemployment
