International Competitiveness, Investment and Finance: A Case Study of India

By A. Ganesh-Kumar; Kunal Sen et al. | Go to book overview

1

Competitiveness, investment and finance

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International competitiveness generally refers to the ability of a country to expand its share in world markets. It is well known that most of the developing countries export mainly primary commodities (agricultural products and minerals), which have been facing a long-run decline in prices in the world market (this is the Prebisch-Singer thesis; see Sarkar and Singer 1991; Bleaney and Greenaway 1993; Sapsford and Chen 1998 for recent evidence). Thus, it is being increasingly recognised both among academicians and policy-makers that the capacity of a country to increase its standard of living in the long term depends on the competitiveness of the manufacturing sector (Singh and Howes 2000; Fanelli and Medhora 2002).

At a fundamental level, the competitiveness of a country in a particular commodity depends on the price at which it delivers the commodity in a foreign market in comparison with the price offered by competing countries for that commodity in the same market. At an analytical level, the evolution of overall competitiveness of a country over time depends on both macroeconomic and microeconomic factors.

The most important macroeconomic variable influencing international competitiveness is the real exchange rate. In the standard neo-classical model, given its assumption of complete wage-price flexibility, any disequilibrium in balance of payments (BOP) in the country in question (possibly arising from differences in the ability of countries to compete in world markets) can only be resolved by adjustments in the real exchange rate.

At the micro level, traditional trade theories have seen competitiveness in terms of factor endowments (labour, capital, natural resources, etc.) of a country and have argued that unit labour costs are the key determinants of international competitiveness. New trade and technology-based theories, on the other hand, have stressed the importance of non-price factors such as investment, technological capability and quality as being more important than price factors in the ability of an industry or firm to gain international competitiveness. A thread common to both the traditional and new trade theories is that all the factors identified as influencing competitiveness are

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International Competitiveness, Investment and Finance: A Case Study of India
Table of contents

Table of contents

  • Title Page v
  • Contents ix
  • Figures xi
  • Tables xii
  • Preface xv
  • 1 - Competitiveness, Investment and Finance 1
  • 2 - The Policy Environment in India 12
  • 3 - The Balance of Payments and National Competitiveness 27
  • 4 - The Determinants of Sectoral Competitiveness 51
  • 5 - Outward Orientation 63
  • 6 - Finance Constraints, Persistent Exporting and Investment 93
  • 7 - Conclusions and Policy Implications 115
  • Appendix 123
  • Notes 146
  • References 151
  • Index 157
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