1. Competitiveness

2. It is the increasing integration of the international economy The Economist has described it as the “The Death of Distance” Globalization has many dimensions: (1) Deregulation of world product, capital and labour markets increasing financial and factor mobility and trade in goods and services (2) Expansion of multinational activity – there are more than 60,000 trans-national companies with an estimated 800,000 affiliates The increased freedom and capacity of individuals and firms to undertake economic transactions with residents of other countries and operate on a global scale What is Globalization?

3. UK Comparative Advantage? Long term (structural) trade deficit in goods – widening to over £46 billion in 2002 UK remains a net oil exporter but this may finish by the middle of the current decade UK retains a comparative advantage in chemicals High trade deficits in semi finished and finished manufacturing (particularly low valued added products) Relatively stronger position in international trade in services – particularly financial services But weakness in travel & tourism and aviation Trade is well balanced with the European Union and the United States but heavy deficits with the Asian economy

4. UK Trade Balance in Goods

5. Areas of comparative advantage / disadvantage

6. UK trade balance in services

7. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS Sources of competitive advantage in a global economy

8. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS PRODUCTIVITY Sources of competitive advantage in a global economy

9. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS EXCHANGE RATE PRODUCTIVITY Sources of competitive advantage in a global economy

10. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS CAPITAL INVESTMENT EXCHANGE RATE PRODUCTIVITY Sources of competitive advantage in a global economy

11. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS CAPITAL INVESTMENT TECHNOLOGICAL PROGRESS EXCHANGE RATE PRODUCTIVITY Sources of competitive advantage in a global economy

12. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS INNOVATIONCAPITAL INVESTMENT TECHNOLOGICAL PROGRESS EXCHANGE RATE PRODUCTIVITY Sources of competitive advantage in a global economy

13. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS INNOVATIONCAPITAL INVESTMENT TECHNOLOGICAL PROGRESS EXCHANGE RATE PRODUCTIVITY LABOUR MARKET PERFORMANCE Sources of competitive advantage in a global economy

14. INTERNATIONAL COMPETITIVENESS COMPARATIVE ADVANTAGE UNIT LABOUR COSTS INNOVATIONCAPITAL INVESTMENT TECHNOLOGICAL PROGRESS EXCHANGE RATE ENTRE-PRENEURSHIP PRODUCTIVITY LABOUR MARKET PERFORMANCE Sources of competitive advantage in a global economy

15. How Big is the Productivity Gap?

16. UK Competitiveness Summary Since 1995, the standard measure of competitiveness (relative unit labour costs) has worsened by 40% –3/5 of this is due to the continued strength of the exchange rate –2/5 due to the slower productivity growth and faster growth of wages and earnings (leading to rising unit wage costs) Some aspects of our competitiveness have improved –Low inflation –Rising level of business investment But – it takes a tremendous amount of time for supply-side improvements to fully work their way through Globalisation will intensify the need for the British economy to become more competitive in price and non-price terms