There are several approaches to measuring national competitiveness.
One is to link price competitiveness, a microeconomic concept, with external
balance, a macroeconomic concept. The prices of exports and imports
that drive trade flows and thus external balance are determined in part by
the costs and strategies of individual businesses, for which microeconomic
concepts of price competitiveness are crucial. But macroeconomic factors
such as exchange rates, which an individual firm does not control, also
affect a firm’s price competitiveness. Together firms’ microeconomic decisions
and broader macroeconomic factors affect the price competitiveness
of exporters and import-competing firms, and price competitiveness is
one force driving trade flows and external balance.