examine the factors which might cause a decrease in the international competitiveness (20marks)

examine the factors which might cause a decrease in the international competitiveness (20marks)

1. Factors influencing competitiveness

   • Exchange rates: increase in the value of the country's currency. this is likely to make a country's goods less competitive abroad and imports more competitive .
   • Productivity: if a country is less competitive compared to trading partners, this will reduce competitiveness. As productivity falls this will lead to the firms raising its prices.
   • increase in rate of inflation relative to other countries= higher prices = less competitve
   • Wage and Non-wage costs: increase in company pensions and taxes on employment of workers compared to a country's trading partners= less competitive due to higher costs
   • Increase in regulations=increased cost of production therefore less competitive.
   • Quality: firms which produce better quality products than their international rivals will have a competitive advantage
   • Research & Development: this influences the uniqueness of a product. The extent to which firms engage in R&D may influence the long term international competitiveness of a country
   • Taxation: Firms argue that levels of company taxation are important to international competitiveness. High taxes on profits lead to deteriorating international competitiveness

2. Evaluation

   • Relative significance of factors selected
   • Whether or not these are short or long term factors.
   • Competitiveness might not fall following a rise in exchange rate if exporters cut profit margins
   • The extent to which there is a change in competitiveness depends in part on the PED for a good/service.

3. June 2010 Question 3a