Global Interdependence

International Competitiveness

 
What is it?

International competitiveness is the degree to which a country's goods and services can meet the test of international markets while simultaneously maintaining and expanding the incomes of its people in the long term.

 

Basically, think of a country as a shop that sells goods or services. Other countries are competitor shops on the same shopping strip. International competitiveness is the ability for a shop to be able to compete with other shops while continuing to make a growing profit, in other words, being competitive does not come at an economic cost.

 

Determinants of International Competitiveness

International competitiveness is determined by the following factors:

  • Labour wages

  • Inflation

  • Labour productivity

  • Exchange rate

  • Infrastructure

  • Legal & Regulatory System

 

Is Australia Competitive?

Australia has the following characteristics:

  • High labour wages (A minimum wage setting of $17.70 AUD compared to the United State's $10.08 AUD an hour - Source: ABC News) - uncompetitive

  • Recent low inflation of 1.9% (Oct 2018), but this is in line with most major economies - neutral

  • High levels of Labour Productivity ($83,190 per person) - competitive

  • Somewhat high exchange rates between 0.70-0.78 USD per $1 AUD - uncompetitive

  • Sufficient and reliable infrastructure - reliable and efficient transport network, high levels of investment in education and health infrastructure - competitive

  • Effective and efficient political and regulatory system - governing bodies such as ASIC and ACCC have effective powers in enforcing the law and ensuring smooth free markets - competitive

In a Deloitte Manufacturing Competitiveness research study, Australia was ranked 21 out of 40 countries, with a prediction to be downgraded to number 22 in 2020. While Australia has seen high wages and a high exchange rate, Australia in the long term has maintained a high level of labour productivity, efficient regulatory system and reliable infrastructure to ensure Australian exports remain competitive. 

 

International competitiveness, however, varies by industry. Industries such as mining, are highly competitive due to the investment in capital deepening ensuring a high capital-to-labour ratio.

Australia's Competitiveness is Slipping | ABC News

ABC News presents a discussion on Australia's downgrade in the international competitiveness as shown in the OECD report with professor Steven Martin.

Government Efficiency in Australia

Australia is said to have high levels of government efficiency, with strong institutions of law and order for trade and commerce. Examples of efficiency include:

  • Low protectionism for foreign trade

  • Relatively fast start up times to register a business - an ABN and business name can be obtained instantly online with a fee

  • Strong and enforceable intellectual property laws encourage research and development

  • High credit rating for government debt (between AA and AAA)

  • Strong rule of law with respect for law and order instituions

This has led to Australia as 14th in terms of government effiency around the world in the IMD's World Competitiveness Yearbook (Source: Aus Trade)

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