The document discusses international competitiveness and rankings of countries. It shows that Switzerland, Singapore, and Finland ranked as the top three most competitive countries in 2014. The UK ranked 9th overall. Competitiveness is measured using indicators like institutions, infrastructure, education, innovation, and labor market efficiency. Analysis explores factors affecting external competitiveness like costs, quality, and policies that can improve competitiveness through investing in education, infrastructure, entrepreneurship, and maintaining macroeconomic stability.

1. A2 Macro:
International Competitiveness

2. What is international competitiveness?
• The ability of a business or a country to
compete effectively in international markets

3. The UK’s Growing Current Account Deficit
A sign of an uncompetitive economy?

4. Selected Competitiveness Rankings for 2014
1st:
Switzerland
2nd:
Singapore
3rd: Finland
4th: Germany
5th: United
States
9th: UK

5. Competitiveness Rankings for European Countries

6. Global Competitiveness Index (WEF Measure)
The Global Competitiveness Index uses indicators which measure:
Indicator Brief comment on the indicator
Effectiveness of institutions Protection of property rights, rule of law, corruption
Quality of infrastructure Quality of transport, communications, energy etc.
Macroeconomic performance Inflation, fiscal balance, government debt, growth
Health and primary education Malaria incidence, prevalence of HIV, mortality rates
Higher education and training Quality of teaching/attainment e.g. in STEM subjects
Efficiency of goods & labour markets Intensity of competition, tariffs, other barriers
Technological readiness Internet use, availability of latest technologies
Sophistication of business Supplier quality, business clusters,
Innovation Patent applications, research & development spend

7. 2014-15 Global Competitiveness Index (UK Rankings)
Indicator
UK ranking out of
144 countries
Overall
competitiveness
9th/144
Institutions 12th/144
Infrastructure 10th/144
Macroeconomic
environment
107th/144
Labour market
efficiency
5th/144
Technological
readiness
2nd/144
Highlighted problems for business
• Access to affordable finance
• Inadequately educated workforce

8. 2014-15 Global Competitiveness Index (UK Rankings)
Indicator
UK ranking out of
144 countries
Overall
competitiveness
9th/144
Institutions 12th/144
Infrastructure 10th/144
Macroeconomic
environment
107th/144
Labour market
efficiency
5th/144
Technological
readiness
2nd/144
Highlighted problems for business
• Access to affordable finance
• Inadequately educated workforce

9. Analysis: International (External) Competitiveness
External competitiveness is the ability to sell goods and services at
competitive prices in a foreign country
• Cost competitiveness
• Differences in unit labour costs – reflected in producer prices
• Non-price competitiveness
• Product quality, design, reliability and performance, choice,
after-sales services, marketing, branding and the availability
and cost of replacement parts
• Non-wage costs:
• Costs of meeting environmental / health regulations
• Environmental taxes e.g. carbon taxes and waste taxes
• Employment protection laws and health and safety laws
• Requirements to provide pensions for employees

10. Analysis: International (External) Competitiveness
External competitiveness is the ability to sell goods and services at
competitive prices in a foreign country
• Cost competitiveness
• Differences in unit labour costs – reflected in producer prices
• Non-price competitiveness
• Product quality, design, reliability and performance, choice,
after-sales services, marketing, branding and the availability
and cost of replacement parts
• Non-wage costs:
• Costs of meeting environmental / health regulations
• Environmental taxes e.g. carbon taxes and waste taxes
• Employment protection laws and health and safety laws
• Requirements to provide pensions for employees

11. Analysis: International (External) Competitiveness
External competitiveness is the ability to sell goods and services at
competitive prices in a foreign country
• Cost competitiveness
• Differences in unit labour costs – reflected in producer prices
• Non-price competitiveness
• Product quality, design, reliability and performance, choice,
after-sales services, marketing, branding and the availability
and cost of replacement parts
• Non-wage costs:
• Costs of meeting environmental / health regulations
• Environmental taxes e.g. carbon taxes and waste taxes
• Employment protection laws and health and safety laws
• Requirements to provide pensions for employees

12. Relative Unit Labour Costs
• Relative unit labour costs measure the labour cost per unit of output
expressed in a common currency and index number format
• Relative unit labour costs will rise when
1. A country’s exchange rate appreciates against other nations
2. Wage costs rise relatively faster
3. Labour productivity growth is slower than in other countries
Country Index of
Relative Unit
Labour Costs in
2010
Index of
Relative Unit
Labour Costs in
2014
Source: OECD World Economic Outlook
Comment
United Kingdom 100 103.4 No significant change in cost competitiveness
Switzerland 100 111.0 Appreciating currency
Japan 100 76.2 Depreciating currency and price deflation
Germany 100 102.6 Steady unit costs
Spain 100 88.6 Recession, wage cuts and some deflation
New Zealand 100 119.1 Strong currency has worsened competitiveness

13. Relative Unit Labour Costs
• Relative unit labour costs measure the labour cost per unit of output
expressed in a common currency and index number format
• Relative unit labour costs will rise when
1. A country’s exchange rate appreciates against other nations
2. Wage costs rise relatively faster
3. Labour productivity growth is slower than in other countries
Country Index of
Relative Unit
Labour Costs in
2010
Index of
Relative Unit
Labour Costs in
2014
Source: OECD World Economic Outlook
Comment
United Kingdom 100 103.4 No significant change in cost competitiveness
Switzerland 100 111.0 Appreciating currency
Japan 100 76.2 Depreciating currency and price deflation
Germany 100 102.6 Steady unit costs
Spain 100 88.6 Recession, wage cuts and some deflation
New Zealand 100 119.1 Strong currency has worsened competitiveness

14. Understanding Data: EU Unit Labour Costs
Unit labour costs can be reduced either by reducing wage and/or non-
wage labour costs, or by increasing labour productivity

15. Evaluation: Limitations of Unit Labour Cost Measure
• Data ignores variations in product quality and
other non-price factors
• A country could rate poorly on unit labour costs,
but make-up for that through relatively low capital
costs, energy, land and borrowing costs
• The exchange rate can also bring about changes in
the competitiveness of exporters
• E.g. a depreciation of the exchange rate reduces
export prices in the currency of the export market

16. Fluctuations in the UK Exchange Rate

17. Fluctuations in the UK Exchange Rate
• £ has been depreciating against the US dollar (down 10% on the year)
• £ has been appreciating against the Euro (up 14% on the year)

18. Some Factors Behind The UK Productivity Puzzle
Capital shallowing
– low investment
Low research
spending
Weaknesses in
management
Outdated
infrastructure
Labour hoarding +
falling real wages
Skills shortages /
training gaps

19. Competitiveness and the BREXIT debate

20. Competitiveness and the BREXIT debate

21. Policies to Improve International Competitiveness
Improving functioning of Labour Markets
• Investment in all levels of education and training
• Encouraging inward migration of skilled workers
• Improvements in management quality
Infrastructure Investment
• Better motorways, ports, hi-speed rail
• Northern Powerhouse project
• Communications e.g. super-fast broadband, 4G
Supporting Enterprise / Entrepreneurship
• Improved access to business finance e.g. for start-ups
• Incentives for business innovation and invention
Macroeconomic Stability
• Maintaining low inflation / price stability
• A sustainable and more competitive banking system
• A competitive exchange rate v major trading partners

22. Policies to Improve International Competitiveness
Improving functioning of Labour Markets
• Investment in all levels of education and training
• Encouraging inward migration of skilled workers
• Improvements in management quality
Infrastructure Investment
• Better motorways, ports, hi-speed rail
• Northern Powerhouse project
• Communications e.g. super-fast broadband, 4G
Supporting Enterprise / Entrepreneurship
• Improved access to business finance e.g. for start-ups
• Incentives for business innovation and invention
Macroeconomic Stability
• Maintaining low inflation / price stability
• A sustainable and more competitive banking system
• A competitive exchange rate v major trading partners

23. Policies to Improve International Competitiveness
Improving functioning of Labour Markets
• Investment in all levels of education and training
• Encouraging inward migration of skilled workers
• Improvements in management quality
Infrastructure Investment
• Better motorways, ports, hi-speed rail
• Northern Powerhouse project
• Communications e.g. super-fast broadband, 4G
Supporting Enterprise / Entrepreneurship
• Improved access to business finance e.g. for start-ups
• Incentives for business innovation and invention
• Reductions in red tape
Macroeconomic Stability
• Maintaining low inflation / price stability
• A sustainable and more competitive banking system
• A competitive exchange rate v major trading partners

24. Policies to Improve International Competitiveness
Improving functioning of Labour Markets
• Investment in all levels of education and training
• Encouraging inward migration of skilled workers
• Improvements in management quality
Infrastructure Investment
• Better motorways, ports, hi-speed rail
• Northern Powerhouse project
• Communications e.g. super-fast broadband, 4G
Supporting Enterprise / Entrepreneurship
• Improved access to business finance e.g. for start-ups
• Incentives for business innovation and invention
• Reductions in business red tape
Macroeconomic Stability
• Maintaining low inflation / price stability
• A sustainable and more competitive banking system
• A competitive exchange rate v major trading partners

25. A2 Macro:
International Competitiveness