With the reduction in costs of international transactions, globalization is increasingly dominating the economic debate in recent times. Markets that only a few years ago, measured by economic distance, were distant from each other are moving together and competition appears to be becoming more intense. A good example is the European Union (EU) with its policy of creating a common market in Europe. While traditionally strong economies such as Germany face the aforementioned competition, the EU has also produced a “wunderkind”. Thanks to major investments and subsidies in infrastructure, development and education, Ireland and its economy are performing strongly, producing real economic growth of 5.1% in 2004, compared to just 1.7% in Germany . Naturally, the question arises as to how Ireland will be able to do this. That. Somehow the Irish island appears to be more attractive for economic investment and growth than mainland Europe, or in other words, it appears to be more competitive. This paper introduces the most common tools for measuring a country's competitive position, discusses their limitations and introduces an extended approach. The results are then applied to Ireland.II. Measuring competitiveness The 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 relative to its foreign counterpart and expresses the result in terms of the common currency. When deciding on 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 essentially share the same market, the comparison of the underlying (labour) costs is an indicator of profitability and, consequently, also of the attractiveness of one of the two economies to produce tradable goods . In other words, RERULC is a first indicator of a country's competitiveness. However, this measurement has some notable limitations. These can be shown quite intuitively when analyzing various scenarios. In the first scenario, a depreciation of the national currency (given a market pricing strategy of domestic producers of tradable goods) increases the profit margin in this sector and thus improves the attractiveness to produce in this sector and in this country. This is in line with the above results as the RER is decreasing, indicating an improved competitive position.- 2 -The above discussion can be extended in a first step by introducing the possibility of price differentiation. After a depreciation of the home currency, home country producers will increase production and lower prices to sell the increased production. Therefore, value-added prices for traded goods are changing. Being RERPVT the