With the reduction of international transaction costs, globalization has increasingly dominated the economic debate in recent times. Markets that, in terms of economic distance, were far apart only a few years ago are moving together and competition appears to be tightening. The European Union (EU), with its policy of creating a common market in Europe, is a good example. While traditionally strong economies, such as Germany, face the competition mentioned above, the EU has also produced a “prodigious child”. Thanks to significant investment and subsidies in infrastructure, development and education, Ireland and its economy are doing very well, producing real economic growth of 5.1% in 2004, compared to just 1.7% in Germany. Of course, the question arises as to how Ireland is able to do that. Somehow the island of Ireland appears to be more attractive for economic investment and growth than mainland Europe, or in other words, appears to be more competitive. This article presents the most common instruments for measuring a country's competitive position, discusses their shortcomings, and introduces a broader approach. The results are then applied to Ireland.II. Measuring competitivenessThe traditional measure used by many economies to assess competitiveness, also used in the EU, is the real exchange rate (RER). The RER measures a given domestic price index against its foreign counterpart and expresses the result in terms of the common currency. When choosing a price index, a commonly used index is the unit labor cost (ULC) in a country's traded goods sector. The logic of this index is simple: since the traded products basically share the same market, the comparison of the underlying (labor) costs is an indicator of profitability and, therefore, also of attractiveness of one or the other of the two economies to produce exchangeable goods. In other words, RERULC is a primary indicator of a country's competitiveness. However, this measure has some considerable shortcomings. These can be presented quite intuitively when analyzing various scenarios. In the first scenario, a depreciation of the national currency (taking into account a market pricing strategy of national producers of tradable goods) increases the profit margin in this sector and thus improves the attractiveness of production in this sector and in this country. This is consistent with the findings above since TCR decreases, indicating an improved competitive position. - 2 - The above discussion can be extended initially by introducing the possibility of price differentiation. After a depreciation of the domestic currency, producers in the home country will increase their production and lower their prices to sell the increased production. As a result, the value-added prices of traded goods change. RERPVT being the