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Theory and Measurement of Competitiveness

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  • Rantala, Olavi

Abstract

The study deals with the theory and measurement of competitiveness. The basic theory of firm implies that under constant returns to scale the unit cost of production can be used to measure the marginal cost of production and to model the impact of competitiveness on the market share of a firm. The competitiveness and the market share of a firm is the lower the higher its unit costs are compared to the average unit costs of all firms in the market. Empirical measurement of the unit costs of the Finnish industry is made with respect to Germany. It turns out that the unit costs of the Finnish industry have risen higher than the unit costs of the German industry since 2005, calculated without the effect of electronics industry. In addition to production costs the study deals with the theoretical and empirical impact of transportation costs on competitiveness in export markets. This is an important issue for Finland, which is geographically far away from the main markets of the world. A major disadvantage for the future competitiveness of Finnish export industry will be the EU sulphur directive and the possible inclusion of shipping into the EU emissions trading scheme. The longer marine transportation distance from Finland means that Finland will lose competitiveness for example compared to Germany.

Suggested Citation

  • Rantala, Olavi, 2013. "Theory and Measurement of Competitiveness," ETLA Reports 15, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:report:15
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    File URL: http://www.etla.fi/wp-content/uploads/ETLA-Raportit-Reports-15.pdf
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    More about this item

    Keywords

    Competitiveness; Imperfect competition; Production costs; Transportation costs;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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