International Competitiveness – AS/A LEVELS/IB/IAL

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

Measures of International Competitiveness

Relative unit labour costs

Unit Labour Costs are: (total wages / real output). These are costs incurred for employing workers for each unit of good

Measured in an index number with one year chosen as a base year

Higher unit labour costs – the unit labour cost per unit is rising faster in the UK, in comparison to other countries, suggesting the UK is becoming less competitive

Relative export prices

Higher relative export prices – UK is becoming less competitive as its export prices have risen more than other countries’ export prices

Factors influencing International Competitiveness

Exchange Rates

A rise in the pound will make the UK less competitive as the price of their exports increase

Investment

Productivity and better quality goods / services will improve from investment into infrastructure. Investment into R&D also allows firms to produce more innovative products, increasing the UK’s competitiveness

Productivity

A rise in labour productivity will increase the UK’s competitiveness as their costs and prices will be lower

Regulation

Cost of production will increase as the level of regulation rises. Regulation will reduce a UK’s competitiveness as it can slow down business decisions and make them less adaptable to global changes

Taxation

High tax rates can reduce international competitiveness as as it discourages firms to invest and take risk

Inflation

Competitiveness will increase with lower levels of inflation as UK goods do not increase as much in price, compared to that of other countries

Economic Stability

Competitiveness will fall if the country is not economically stable as there will be less investment

Advantages of International Competitiveness

Current Account Surpluses

Foreign Direct Investment will be greater as a country will be able to invest internationally, as well as build a portfolio of assets overseas which will generate interest and profit

Attract Foreign Investments

A competitive economy is likely to attract inflows of foreign investment, which will create a transfer of knowledge, skills and technology

Economic Growth

There will be supply side improvements leading to an increase in efficiency and a rise in employment as more goods are being produced. This means more products are able to be sold, hence there will be an increase in the demand for labour and employment, causing positive economic growth

Disadvantages of International Competitiveness

International Competitiveness can be easily lost

Developing countries which have advantages due to lower costs of labour and cost of material could see this disappear if export-led growth arises

A rise in the exchange rate

Exchange Rates are likely to increase as the current account surplus rises, which will reduce competitiveness

Quick Fire Quiz – Knowledge Check

1. Identify and explain two measures of International Competitiveness (4 marks)

2. Identify and explain five factors of International Competitiveness (10 marks)

3. Identify and explain three advantages of International Competitiveness (6 marks)

4. Identify and explain two disadvantages of International Competitiveness (4 marks)

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