ABSTRACT
This chapter reviews the main input and output measures and highlights their characteristics and shortcomings. It introduces the role of capital efficiency and formally develops the CER Competitive Index (CCI) and test econometrically the performance of the CCI. The most commonly used input measures for competitiveness are indices of relative prices or costs, either in levels or rates of change. In the production function approach, the output measures of competitiveness are aggregates reflecting the economic performance of a country. Our definition of competitiveness as the ability to generate or attract sustained investment assigns a critical role to wages and wage bargaining, but also to productivity of labour and capital. After 1980 monetary policies became tight to bring inflation down, and neoliberal policies of liberalising financial and product markets drove up profit margins and the returns to capital all over the world.
