Introduction

This chapter analyses the relative international competitiveness of the largest four EC economies compared with their two largest advanced competitors – the USA and Japan. It focuses on international trade performance in manufacturing industry in the period 1980 to 1987. This time scale allows us to assess both levels of relative competitiveness and trends in competitiveness. The chapter aims to provide, firstly, a descriptive analysis of these six economies' trade performance, addressing questions as to the similarity or otherwise of their trade structures, the degree of convergence or divergence in these structures, the patterns of competitiveness and specialisation, and secondly, an econometric analysis aimed at identifying the determinants of the performance of the European economies relative to the USA and Japan.

The analysis also addresses the fairly widely held view, expressed in particular by the European Commission (EC), that the European economies must improve their competitiveness vis-à-vis the USA and Japan and reverse the relative weakening of their competitive position – the ‘eurosclerosis’ – of the 1980s. The completion of the internal market in 1992 and a focus on high technology are seen as two central routes whereby the European economies can become more competitive. In this chapter we consider the basis for this view by analysing the competitiveness of these six largest OECD economies both to assess the nature of their relative competitive positions and to identify what are the key determinants of their relative competitive performance.