Answer to Question #50198 in Macroeconomics for Neha

Question

What trade theories has to say about relation between a firms productivity and exposure to global competition.

Answer 1

The greater the level of competition in an economy (competitive intensity), the better off its citizens will be and the better its successful firms will be able to compete beyond the boundaries of the domestic economy. Opening an economy to the free entry of goods, services, competitors and capital increases competitive intensity in the economy and, as a result, its productivity.
It is important to recognize that it takes time to realize the benefits of the interactions between competition, competitiveness and productivity. Just as we invest for the future by educating our children today, so too must we invest now in fostering greater competition for benefits to accrue in the future. Moreover, we cannot shy away from taking the tough decisions required to enhance productivity today because the benefits will be realized tomorrow.