UK International Competitiveness

 

Benefits of Improving International Competitiveness

  1. Exports relatively cheaper leading to higher demand for exports.
  2. Higher exports will help increase aggregate demand and economic growth
  3. Improved competitiveness will help improve the UK's current account deficit.
  4. Lower Economic growth and living standards, (negative multiplier effect)
  5. Create jobs in the export sector
  6. Help to reduce inflation in the economy.

 

Measuring International Competitiveness

 

  1. Relative Export Prices

If UK exports become more expensive than other countries, this is a decline in competitiveness.

Terms of Trade measures          index of  Export Prices
                                                index of Import Prices

more on: terms of trade

2. Productivity and Unit Costs of Production

uk-productivity

Annual growth in UK labour productivity.

If there is an increase in relative productivity, meaning industry can produce more with lower costs then UK will become more competitive.

uk-productivity

This graph shows that between 1990 and 2005, UK labour productivity increased at a faster rate than the UK. This helped the UK to improve their relative competitiveness.

  1. Current account / Balance Of Payments
current-account

This is a rough guide to international competitiveness. If the current account improves then the value of exports has increased faster than imports, suggesting an improvement in competitiveness.

The persistent UK current account deficit, suggests a decline in competitiveness.

However, the current account is also affected by the demand for imports.

 

Factors That Determine Competitiveness

  1. Relative inflation rates
  2. Labour productivity growth
  3. Levels of infrastructure / e.g transports
  4. Cost of business - levels of regulation
  5. Exchange Rate

See more detail on factors that determine international competitiveness

 

 

Revision Notes and Essays on International Trade

International Trade

Globalisation

Rise of Globalisation

Effects Globalisation on UK Economy

International Competitiveness

Govt policies to increase competitiveness

World Trade Organisation