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Test Essay on International Competitiveness

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Stephen Berkowitz Economics - Unit 4 Test Essay - International Competitiveness Question 3 June 2010: 3 (a) The UK fell from 9th to 12th place in the Global Competitiveness Index between 2007 and 2008. Examine the factors which might have caused the decrease in the international competitiveness of the UK’s goods and services (20) A country’s international competitiveness in output markets is a measure of its ability to increase the sales of its goods and services in both its domestic markets and overseas markets compared to that of its trading rivals. I will be looking at the aspects of this that are price competitive. The first factor I’ll look at is the real exchange rate and effective exchange rate. The real exchange rate is the…show more content…
By simply pushing up total operating costs for businesses this will then damage international price competitiveness. The is exacerbated by compliance costs such as health and safety regulations, environmental regulations, and employment protection laws, that all reduce international price competitiveness. 3 (b) Evaluate strategies which may be used by businesses and government to improve the competitiveness of the UK’s goods and services (30) To improve the international competitiveness of the UK’s goods and services, I’ll be looking at supply side policies, exchange rate policies, and policies that promote stability. Supply side policies aim to achieve an outward shift in the LRAS curve by increasing the quantity and improving the quality of factor inputs. The first supply side policy I’lll be looking at is a reduction in taxes for businesses. What corporation tax cuts will result in is less money spent on tax, allowing more money to be available for firms to spend on investment spending. The reduction of tax will only be useful in the extra money is spent in this way, as the government will benefit in the long run from the decrease of money gained in the short run if the LRAS curve shifts to the write. Reducing tax may also increase foreign direct investment spending by other countries in the UK. With greater capital goods, labour productivity will increase by increasing
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