As a result of an increasingly open and interconnected global economy, competitiveness is a
central concern for both advanced and developing countries. In general terms, competitiveness
can be shaped by the microeconomic environment and the macroeconomic policies, and it is
overall influenced by the social infrastructure and the political institutions.
Of the two economic dimensions of competitiveness, the microeconomic environment—the
business climate in a broad sense, encompassing production factors’ markets, the degree of trade
liberalization, physical infrastructure, the sophistication of operations, and firm strategy—is
considered the most important in terms of its impact on enterprise productivity levels.
Meanwhile, macroeconomic policies have a comprehensive impact on the economy and affect all
firms or groups of firms in the same way. The microeconomic environment, by contrast, can
have a differentiated impact by influencing entrepreneurs’ ability to launch new activities and the
ease of expanding or contracting economic operations.
International competitiveness is crucial for the sustainability of an economy. In recent decades,
the concept of international competitiveness has gained in relevance, particularly from the
perspective of economic development and growth. This has led to the establishment of measures
for measuring competitiveness—specifically, a country’s success in developing and sustaining a
healthy, high-performing business environment for enterprises operating within its boundaries, as
well as in supporting their performance at the international level.
Competitiveness is a well-known term to which numerous definitions have been attributed over
time. Economists tend to associate the concept of competitiveness with enterprises, whereas
analysts and various opinion leaders apply it to territories—cities, provinces, regions, or nations.
Krugman (1994) is among those who believe that this concept should not be applied to nations.
Countries do not compete—companies do—and an emphasis on national competitiveness can
lead to a flawed zero-sum game of international trade (De Grauwe, 2010). Firms compete in
global markets; some succeed and increase their profits at the expense of others, which lose
market share or go bankrupt. Unlike at the company level, national competitiveness should
generate prosperity. Decision-makers need a perspective on national competitiveness, as
locational factors help determine firm-level competitiveness by influencing the availability and
cost of production factors, as well as operating and transaction costs. Competitiveness stems
from firms leveraging sources of comparative advantage prevalent in a specific location—many
of which are endogenous, resulting from economic policies and institutional measures
implemented over time. Ultimately, decision-makers often conflate the competition between
nations in global markets with that between companies; yet, experience shows that international
trade is not a zero-sum game: for instance, economic growth in the US economy does not come
at the expense of the European economy.
Krugman analyzes the issue of European competitiveness through the lens of a statement by
former European Commission President Jacques Delors: Delors identifies unemployment as the
fundamental problem regarding European competitiveness compared with the United States and
Japan, proposing an investment program in infrastructure and advanced technologies as the
solution. Krugman lists three counterarguments regarding the concept of competitiveness: first, it
can generate wasteful government spending ostensibly aimed at boosting competitiveness;
second, it could lead to protectionism and trade wars; and finally—and most importantly—it can
foster flawed public policy. Krugman’s starting premise is that applying the concept of
competitiveness to nations can distort domestic policies and jeopardize the international
economic system.
According to The 2025 Annual Single Market and Competitiveness Report issued by the
Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions, the EU’s economy relies on the Single Market,
which includes 450 million people, 23 million companies, and EUR 17 trillion GDP.
The European Union represents the most advanced form of economic integration to date,
involving sovereign states. Despite efforts to deepen European integration, significant
competitiveness disparities persist among firms and industries located across the various EU
member states. Consequently, there is a valid case for countries to pursue more substantial
cooperation or even deeper integration; however, the example of the EU—or the
Eurozone—demonstrates that while this approach may be effective, it cannot resolve the issue of
competitiveness. Although there are numerous ideas regarding how to address negative cross-
border effects, there is currently no consensus on which specific policy aspects give rise to such
effects.
Thus, one consequence would be that countries need to cooperate to establish the preconditions
for stronger forms of international cooperation by increasing the transparency of policies under
development, supporting independent analyses of policy impacts, and establishing mechanisms
for governments to consult one another and exchange information.
A common theme in the literature on competitiveness is identifying policies that governments
can pursue to improve an economy’s long-term productivity performance. A characteristic of this
body of literature is its focus on nations. One reason for this is that national govenments and
political entities make decisions influencing competitiveness; while measures taken by other
countries may have a limited impact on global market competition, what matters most to the vast
majority of countries is the national investment climate—the primary determinant of domestic
enterprises’ ability to compete effectively in global markets.
The political challenges lie in transforming this opportunity into sustainable, long-term
growth—primarily at the domestic level—and in creating an attractive business environment and
an investment-friendly climate able to generate quality jobs for citizens.
We are living through an era of unprecedented uncertainty. Growth prospects are increasingly
uneven across regions and sectors, policy constraints are hardening, and geopolitical tensions are
becoming a more decisive force in shaping economic activity. The international environment that
underpinned decades of European prosperity—characterized by expanding trade, relatively stable
geopolitical relations and increasingly integrated global value chains—is becoming more
fragmented. For Europe, this is not simply a question of navigating a more volatile business
cycle. It raises deeper questions about the conditions under which European firms can invest,
innovate, scale and compete in a rapidly changing global economy.
Against this backdrop, competitiveness can no longer be understood solely through the
traditional lens of productivity, costs, investment or market efficiency. An interesting point of
view on the future of competitiveness is found in the World Economic Forum’s White Paper,
issued in June 2025, named ”Global Economic Futures: Competitiveness in 2030”, which
elaborates on the fact that competitiveness increasingly sits at the intersection of economic
fundamentals, regulatory choices and geopolitical developments. Regulation determines not only
the framework within which businesses operate, but also their incentives to invest and innovate.
Trade policy increasingly reflects strategic considerations alongside the pursuit of market access.
Geopolitical tensions are reshaping supply chains, investment decisions, access to critical
technologies and the resilience of international networks. European competitiveness therefore
depends on the ability to preserve sound economic fundamentals while navigating an
international landscape that is becoming more complex, contested and fragmented.
This changing environment also alters the meaning of competitiveness itself. In a world of
relatively stable globalization, competitiveness could often be associated with efficiency:
producing more at lower cost, accessing larger markets and integrating ever more deeply into
international value chains. Today, efficiency must increasingly be balanced with resilience,
security and strategic autonomy. Businesses are being asked to reassess where they source
inputs, where they invest, which markets they serve and which technologies they depend on. The
result is not necessarily a retreat from globalization, but a transformation of the way firms
participate in it.
Shaping the future of EU’s competitiveness will therefore require more than incremental
adjustments to the existing policy framework. It will require business transformation. Changes in
trade policy, geopolitical rifts and the fraying of international networks are forcing companies to
rethink established business models and strategies. Firms must become more agile in responding
to regulatory change, more deliberate in managing geopolitical exposure and more capable of
reallocating capital and resources as the global competitive landscape evolves. At the same time,
policymakers must ensure that the regulatory and economic environment enables rather than
constrains this transformation.
The central challenge for the European Union is consequently to reconcile openness with
resilience, regulation with innovation, and strategic objectives with economic efficiency.
Competitiveness is not a static position that can be protected; it is a continuous process of
adaptation. In an increasingly uncertain global economy, the EU’s ability to compete will depend
on how effectively it translates economic strength, technological capabilities and institutional
capacity into the flexibility required to navigate a world in which the rules of competition are
themselves changing.