ABSTRACT
Several prominent neoclassical trade economists have recently launched attacks on popular notions that the US economy suffers from a loss of international competitiveness. Krugman (1994a, p. 44) proclaimed that “competitiveness is a meaningless word when applied to national economies. And the obsession with competitiveness is both wrong and dangerous.” Corden (1994) dissected various definitions of competitiveness and concluded that what may appear to be losses of national competitiveness are really problems caused by rigid real wages or low saving rates at home. Krugman and Corden are certainly right in criticizing some loose notions of “competitiveness,” as well as in pointing out that many competitive problems are really domestic in origin. But the significance of international constraints on economic growth and living standards should not be so quickly dismissed. In fact, only a few years earlier, some mainstream neoclassical economists
had conceded the existence of competitiveness problems and, curiously enough, Krugman was in the forefront of those who tried to define the phenomenon.1
Hatsopoulos et al. (1988, p. 299) defined competitiveness as “the ability of a country to balance its trade . . .while achieving an acceptable rate of improvement in the standard of living.”2 Dornbusch et al. specified that:3
