Study Notes
International competitiveness refers to the ability of a nation or company to compete effectively in global markets. It involves various measures and factors that influence a country's ability to maintain or improve its position in the international market.
- Relative Productivity Rates — a measure of labor efficiency, calculated as real GDP per hour worked. Example: The USA experienced the sharpest rise in productivity among G7 countries from 1997 to 2016.
- Relative Unit Labour Costs — the average cost of labor per unit of output, calculated as total wages divided by real output. Example: Falling unit labor costs suggest increased competitiveness.
- Relative Export Prices — compares a country's export prices to those of its main trading partners. Example: A rise in relative export prices signals a decline in competitiveness.
- Exchange Rates — the value of a country's currency in relation to others, affecting price competitiveness. Example: A fall in exchange rates increases price competitiveness abroad.
- Non-Price Factors — elements like design, branding, and quality that influence consumer demand. Example: Technology and innovation help produce unique products that stand out globally.
Exam Tips
Key Definitions to Remember
- International Competitiveness
- Relative Productivity Rates
- Relative Unit Labour Costs
- Relative Export Prices
Common Confusions
- Confusing relative export prices with absolute export prices
- Misunderstanding the impact of exchange rate changes on competitiveness
Typical Exam Questions
- What happens to an economy's international competitiveness if relative export prices rise? It declines.
- How would a fall in a country's exchange rate affect its international competitiveness? It improves competitiveness by making exports cheaper.
- What impact is trade liberalisation likely to have on an economy's competitiveness? It enhances competitiveness by increasing efficiency and innovation.
What Examiners Usually Test
- Understanding of how different factors influence international competitiveness
- Ability to explain the impact of exchange rate changes on competitiveness
- Knowledge of measures to increase international competitiveness