What factors caused the drop in the UK's Global Competitiveness Rank in 2007 - 08?

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Question 3 – Callum Trounce

  1. One factor which may have contributed to the fall of the UK’s Global Competitive Index is productivity. The GCI is a comparison between different countries; this means that the fall UK’s productivity is relatively larger. The economic crisis can be seen as a reason to cause a drop in productivity as the crisis occurred around the same time period, making it feasible. The crisis caused firms to have profit to reinvest (or no profit at all) and so research and development will be neglected. If R & D is neglected, improving productive efficiency will become a slower process which would lead to unit costs being more expensive than foreign competitors. A higher unit cost means that exports from the UK are likely to become more expensive as firms raise their prices to cover labour costs. This means that the UK becomes less competitive globally and therefore can be seen as a contributor to the fall in GCI for the UK.  This can be backed up as the BoP for the UK was at its most negative point in 2007.
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However, the economic crisis has occurred worldwide and so many other countries have been affected, such as Germany who is seen as a major exporter of motor vehicles. This means that the drop in GCI may not have been as bad as what it could have been.

The exchange rate could also have an impact. The value of the pound appreciated up until a peak in 2007. This would cause the £ to have a higher value, for example UK firms would be able to purchase more goods from Europe or USA. However UK exports become more expensive to ...

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