International Competitiveness Overview

International Competitiveness

• International competitiveness is a nation's ability to produce goods/services that meet global standards while boosting citizen incomes. It's vital for economic growth & trade performance.

Determinants of Competitiveness

• Productivity: Crucial; higher productivity lowers production costs & increases output.
• Exchange Rates: Affect international prices. Appreciation makes exports costly & imports cheaper. Depreciation does the opposite.
• Wage Costs/Unit Labor Costs (ULC): ULC = Total Wages / Output. Lower ULCs improve competitiveness, reducing production costs.
• Innovation & Technology: Investment in R&D creates better products and efficient production.
• Infrastructure: Good transport, communication, and energy systems lower business costs.
• Education & Skills: A well-trained workforce boosts productivity and innovation.

Measuring Competitiveness

• Real Exchange Rate (RER): RER = (Nominal Exchange Rate × Domestic Price Level) / Foreign Price Level. A rising RER signifies a country becoming less competitive (exports more expensive).
• Global Competitiveness Index (GCI): Published by World Economic Forum, evaluates countries based on infrastructure, education, innovation, and macroeconomic stability.

Strategies to Enhance Competitiveness

• Export Promotion: Policies support domestic industries to compete globally (e.g., subsidies, tax incentives).
• Import Substitution: Reduces reliance on imports by boosting domestic production of previously imported goods.
• Industrial Policy: Government intervention helps key industries (e.g., technology sectors).
• Trade Liberalization: Reduces tariffs & non-tariff barriers for competition and efficiency.

Challenges to Competitiveness

• Rising labor costs without productivity gains.
• Overvalued currencies hindering export competitiveness.
• Protectionist policies in trading partners limiting market access.
• Technological gaps between developed and developing countries.

This quiz examines the concept of international competitiveness, focusing on factors such as productivity, exchange rates, wage costs, and innovation. Understanding these determinants is essential for grasping how nations can enhance their economic growth and trade performance. Test your knowledge on the critical elements that influence a country's ability to compete globally.