"Effect of Labour Productivity on Current Account Surplus"

Title: How an Increase in Labour Productivity Boosts the Current Account Surplus: An Economic Analysis

Introduction
Labour productivity plays a crucial role in determining the economic performance of a country. In this essay, we will explore how an increase in labour productivity can lead to a surplus on the current account of a country's balance of payments. By examining various factors such as output per worker, cost of production, international competitiveness of exports, and demand for imports, we will delve into the mechanisms through which labour productivity enhancement can influence the current account balance.

Increase in Output per Worker
One of the primary outcomes of improved labour productivity is an increase in output per worker-hour. When each worker can produce more goods or services in the same amount of time, it leads to higher output levels for the economy as a whole. This increase in productivity can result in a reduction in the average cost of production, as fixed costs are spread over more output units.

Lower Average Costs and Prices
As the average cost of production decreases due to higher productivity, firms can afford to lower prices of their products. This reduction in prices makes exports more competitive in the international market, leading to an increase in the quality of exports. Cheaper exports are more attractive to foreign consumers, resulting in higher demand for exports. Consequently, export revenue is likely to rise, contributing positively to the current account balance.

Enhanced International Competitiveness
The improved quality and competitiveness of exports due to higher productivity levels can enhance the country's international competitiveness. Cheaper exports are more likely to capture market share in foreign markets, leading to an increase in export demand. This, in turn, can boost export revenue and drive up the current account surplus as more goods and services are exported.

Effects on Imports
Conversely, an increase in labour productivity can also impact imports. With higher relative prices of imports and potentially lower quality compared to domestically produced goods, imports may become less competitive in the domestic market. This decrease in the international competitiveness of imports could result in reduced demand for imported goods, leading to a fall in import expenditure.

Output Expansion and Trade Balance
Furthermore, the increase in labour productivity can lead to overall output growth in the economy. With more goods and services being produced, there is a potential for an increase in exports due to the higher availability of products for international trade. Simultaneously, the decrease in import demand may lead to reduced imports, further contributing to a positive trade balance and current account surplus.

Conclusion
In conclusion, an increase in labour productivity can have profound effects on a country's current account balance by boosting export competitiveness, increasing export revenues, and reducing import expenditures. The enhanced output per worker-hour, coupled with lower production costs and prices, can lead to a surplus on the current account of the balance of payments. By continuously striving to improve labour productivity, countries can enhance their global competitiveness and strengthen their economic position in the international arena.