Aggregate Supply policies    Goals of AS policies  Productivity v efficiency  Productivity v competitiveness  The impetus for AS policies  BP supply side initiatives  Industry policy  Microeconomic reforms  Labour market reforms  Benefits of LM flexibility  Trade liberalisation  MRPs and  internal stability  MRPs and  external stability  MRPs and equity  MRPs and living standards  Economicstutor..com.au

Copyright © All rights reserved. Site administered by CPAP and content provided by Romeo Salla    

Email: admin@economicstutor.com.au     romeosalla@economicstutor.com.au


 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

Next page Previous page


Productivity and international competitiveness


Competitiveness refers to the degree of competition that exists amongst different producers of goods and services in their quest to increase market share.  This competition can be based on price or non-price factors (such service or quality).  International competitiveness  therefore refers to the degree of competition that exists amongst different countries (and their producers) in the quest to increase world market share.  An improvement in Australia's international competitiveness means that Australian firms or industries in the tradables sector are producing goods and services at lower prices or higher quality compared to overseas competitors.  This will then enable Australian exporters and import competing producers to attract a greater share of the world market, boosting real GDP, employment and incomes.

 

Generally, improvements in productivity should increase international competitiveness as average costs of production should fall, allowing businesses to reduce prices or improve quality. Ultimately, this is why a key feature of Australia's AS policies (or microeconomic reform policies) has been to expose Australian industries to a greater degree of domestic and international competition.  An increase in competition actually forces businesses to seek productivity or efficiency gains and then to pass those gains onto the ultimate consumer in order to improve their competitiveness and retain or boost market share.  Microeconomic reforms that simply enable producers to improve efficiency or productivity, without any increased exposure to competition, are less effective at achieving all of the government’s goals. This is because producers will not face the appropriate incentives to contain price rises, which has negative implications for the goals of low inflation, strong rates of economic growth and full employment.


Overall, productivity improvements are likely to increase competitiveness, but an increase in competition is necessary to provide businesses with the biggest incentive to increase productivity and reduce prices (or raise quality).  This is a major reason for the existence of the Australian Competition and Consumer Commission (ACCC) - that is, to minimise the extent of anti-competitive behaviour that normally exists in a market capitalist economy.

Test yourself