Competitiveness and Public Debts in Times of Crisis

Abstract

It is observed that countries, possibly more than ever, try to remain or become (more) competitive. This has been felt especially during the recent economic crisis, when countries facing a high debt or deficit attempted to find solutions to overcome it. In most cases the first measures attempted to confront debt or deficit, whatever the problem was. Competitiveness and growth have been discussed but always came second. Sometimes, they were not even considered early enough, although they are of equal or even higher importance. We believe that a country should remain competitive at all times, especially at times of crisis, as it can help it contain its debt (public and private). We even trust that countries that maintain their competitiveness are more capable in weathering adverse economic environments. The purpose of this article is to prove, using an econometric model, the existence of a relationship between the external competitiveness of an economy and its public and private sector deficits, as measured by the relevant debt levels. We indeed find evidence that public and private debt is definitely linked to the country competitiveness as measured by GDP growth, GDP per capita, ease of doing business, tax rate, pensions and unemployment. This can be of use to institutions and policy makers when they want to decide how they will secure that their country is and remains competitive, especially in times of crisis.