A Note on the Competitiveness Debate

Abstract

This article deals with the concept of competitiveness. Competitiveness is technically a firm-level concept. However, it is oftentimes extended to the national level--the idea of a country's 'international competitiveness' with the following analogies: market share-->export share of country; price-->real effective exchange rate or unit labor cost; profitability-->long-run economic growth. The concept of national competitiveness is faulty, in the words of Paul Krugman it has become a 'dangerous obsession.' However, national or government policies do have an impact on firm level competitiveness. The only concept related to firm level competitiveness that can be extended to the national level without ambiguity is technological capability. Since technological capability is at the heart of competitiveness, countries must address this issue squarely. One course of action is to adopt a strategic approach to foreign direct investment--as opposed to a passive strategy--similar to what Malaysia and Singapore did.