Evolution of Competitiveness Theory

Topics: International trade, Comparative advantage, Balance of trade Pages: 4 (1607 words) Published: October 24, 2008
Evolution of Competitiveness theory
Chapter 2 Review: What is competitiveness?
Before exploring Porter’s Diamond Model, Cho and moon invite readers to reflect on the concept of competitiveness. Over the years, the debate has been ongoing about the meaning of this word and most citizens lacking important notions in global trade have stuck with the meaning that was most accessible and comprehensible to them, the same meaning President Clinton gave to it during his time in office: nations are like corporations competing in the global marketplace. This definition implies many things such as the existence of a bottom line for countries and the impossibility of there being two winners in the equation. Paul Krugman starts the debate by presenting his disapproval of this commonly accepted vision. For him, countries unlike corporations don’t have a bottom line in the sense that they don’t try to maximise their citizen’s wealth in order not to cease existing because there is nothing the least resembling to bankruptcy as an option for countries. He also denies that trade is a zero-sum argument. All countries have the possibility of being winners in the world market place through the dynamics of comparative advantage. In Krugman’s views, nations are not in economic competition with each other and their problems can’t be attributed to their lack of success in competing on the global platform. Indeed, since exports are only 10% of GNP, countries are not really dependent on their neighbours for success. Success, in the sense of sustainability and high standards of living, is entirely dependent on a country’s domestic productivity growth. One key point Krugman wants to get through is that because trade balance is so innocuous, there is no need to build domestic polices around it. Doing so would only result in a misallocation of resources and a lack of funding for the service sector, protectionism and bad public policies. He does concede that if purchasing power (real GNP)...
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