Practise competitiveness policy by judging education, training, deregulation, privatisation and exchange-rate measures with trade-offs.
According to the Global Competitiveness Index, Belgium’s international competitiveness rank fell four places between 2015 and 2019.
Evaluate measures that a developed country might take to increase its international competitiveness. Refer to a developed country of your choice in your answer.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis ( 12 marks) - indicative content
Understanding of international competitiveness
- Greater levels of, or more targeted, spending on education and training. This investment in human capital will improve skills (reduce skills gap) and hence productivity levels, which will lower cost per unit
- Incentives for exporters through tax breaks, reduction in corporation tax, subsidies, lower interest rates, etc. This will allow them to undertake more investment as a result of lower costs and reduce export prices
- Measures to reduce the external value of the domestic currency to make exports more price competitive e.g. reduction in interest rates; quantitative easing
- Privatisation, deregulation and trade liberalisation will increase competition in domestic markets making firms more efficient as barriers to entry to markets will be low. This would reduce cost per unit and consequently market prices
- More spending on healthcare will create a healthier and more productive workforce. This will lead to an increase in GDP and allow for significant improvements in the quality of output
- Developments to the infrastructure through improved transport links and communications will encourage more trade and lead to increase efficiency
- Implementing policies to attract more FDI flows into the economy; this would encourage technological improvements and increase dynamic efficiency
- Supporting entrepreneurship through greater access to business finance e.g. for start-ups, incentives for business innovation, reduction in bureaucracy etc
N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer to a developed country in their answer
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Opportunity cost of government spending - e.g. more on subsidies/education /health may mean less for the business sector, especially in the short run
- Lower interest rates and tax breaks could lead to demand-pull inflation via consumption and investment, and reduce price competitiveness
- There are limits to how effective and influential intervention can be, e.g. ability to manipulate exchange rates may be highly constrained and could lead to increase cost of imports, hence cost-push inflation
- Monopoly power (less competition) helps generate some dynamic efficiency, and benefits of economies of scale might be lost if monopolies are broken up
- Levels of investment (both internal and FDI) will depend on confidence in the future state of the economy; incentives may be insufficient/ineffective where confidence is low
- Distinction between SR and LR; are these measures financially sustainable in the long run? Time lags and implementation lags may mean measures take a long time to come into effect
- Spending likely to increase the possibilities of government failure as the costs of these measures may outweigh the benefits that could be gained
- Any measures taken have to be considered in the context of a dynamic global economy where other countries are also trying to increase their competitiveness
- Member countries of the EU may have limited scope for action in introducing some of these measures
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.