IS THE CELTIC TIGER A PAPER TIGER?
IS THE CELTIC TIGER A PAPER TIGER?

IS THE CELTIC TIGER A PAPER TIGER?

Available Only on StudyHippo
  • Pages: 7 (3612 words)
  • Published: November 15, 2018
Text preview

By Cormac Grda Paper presented at the Money, Macro, and Finance Group 2001 Conference, Queen’s University, Belfast, 5-7 September 2001. My thanks to Frank Barry, Joe Durkan, John Sheehan, and Kevin O’Rourke for comments and advice.

IS THE CELTIC TIGER A PAPER TIGER? Cormac Grda Last year Ireland’s GDP grew faster than anywhere else in the world. In 2001 Ireland remains at the top of the OECD growth league (Economist Intelligence Unit, 2001: 10- 11; OECD, 2001: vi). Nonetheless, though the Irish economy continues to attract the headlines, gone is the euphoric tone of even a year or two ago. Now attention focuses more on plant closures by (mainly U.S.) multinationals and the downward revision of growth forecasts. Economists debate the prospects of a ‘soft landing’ and the sustainability of growth rates half or less those experienced in the 1990s.

Nonetheless the achievements of the last decade or so have been indeed notable. For reasons noted below, they are better captured by GNP per head than by GDP per head. Not only has GNP per head in the Republic moved far ahead of Northern Ireland’s in the 1990s, but it has reached that of the UK as a whole. Living standards have risen too, if not quite in tandem. Who would have believed all this possible even a decade ago? Just as there was no hint that a Celtic Tiger was about to roar in the economic commentary of the early 1990s, there was little sense that the experience might prove temporary in the commentary of the late 1990s (e.g. Gray, 1997; Sweeney, 1998; ansey, 1999; Barry, 1999). A

...

ccounts of the Irish economic miracle tended to be very presentcentred. Reading them just a few years later, they seemed to imply that Ireland had switched definitively to a new, higher, steady state growth regime. So much so that for a few years policy makers from far and near sought the key to achieving rapid sustained economic growth from Ireland.1

It became the turn of IDA personnel and Irish economists to travel abroad offering rather seeking advice. A longer-term, more historical perspective suggests a less dramatic spin. Measuring the performance of the Irish economy against that of the OECD convergence club (shorthand for the pattern reflected in Figures 1(a) and 1(b) below) between mid-century and the mid-1980s implies serious under-achievement. In this period only the 1960s offered a ray of hope.

The 1950s were a ‘lost decade’ of virtual stagnation and mass emigration, while between 1973 and the mid-1980s the record was one of initial growth fuelled by reckless fiscal deficits and a bloated public sector, followed by a painful fiscal correction. However, applying the same simple convergence framework to the 1950-1998 period as a unit suggests that Ireland was 2 ‘on track’, in the sense that it grew as fast as an economy with its 1950 income level might be expected to grow ( Grda and O’Rourke, 1996; 2000).

The difference is clear from Figures 1(a) and 1(b). This, and signs that the economy is now returning to more modest growth rates, suggest that the Celtic Tiger’s main achievement was catching up with the rest. Seen

View entire sample
Join StudyHippo to see entire essay
View entire sample
Join StudyHippo to see entire essay

from this perspective, the signs that growth is slackening are nothing to be concerned about. Press commentary evokes a sense of disappointment, however, and public policy, with its focus on the need for yet more and more imported capital and imported labour seems hell-bent on the pursuit of continued rapid growth. pic pic The current slow-down suggests the following interpretation of the half century. Before the late 1980s decades of protectionism followed by wrong- headed fiscal policy widened the gap between Ireland and almost every other economy in western Europe except Britain.

At the same time the Republic had developed some of the prerequisites for faster economic growth: an underemployed labour force; a stock of emigrants willing to return, given better job prospects; ample energy supplies; an underutilised transport network; a competent and honest public service. An attractive tax package for U.S. multinationals attracted by the prospect of the single European market, and the conviction that Irish policymakers had learned from the mistakes of the late 1970s and early 1980s, did the rest. There followed the hectic Celtic Tiger interlude, and by the end of the 1990s Ireland had made up the ground it had lost.

This record is summarised by the fact that Ireland, where GDP per head was the same as in Italy in 1950, fell far behind in the following three decades or so, and then more than made up all the lost ground from the mid-1980s on (in 1998 Ireland’s GDP per head was eight per cent higher than Italy’s). So is the bottom line that Ireland had caught up and that its new growth trajectory would sweep it pass not just Italy but everybody else? Not so. The present value of Irish GDP per head, discounted back to 1950, would have been 28.9 per cent higher had it experienced Italian growth rates over the period as a whole, with the slightly lower Italian average growth over the period, but concentrated at the beginning rather than at the end ( Grda and O’Rourke, 1997; 2000; see Figure 2). Moreover, the spectacular output growth rates of recent years tend to make us forget that productivity performance was not so spectacular relative to the record before 1987. The growth in output per worker between 1971 and 1987 was almost as fast as that in the decade that followed.

Whence Brendan Walsh’s comment that ‘if attention had been focused on output per worker rather than total output the phrase ‘Celtic Tiger’ would never have become popular’ (Walsh, 1999: 3). pic So what produced the Tiger? One of Ireland’s leading macroeconomists has argued that several factors played a role, and that ‘we cannot establish the relative importance of each’ (Walsh, 2000: 671). Still, it is hardly surprising that a recent acclaimed account by an ex politician and an ex-head of the Industrial Development Authority would give pride of place to politicians ‘who took a long-term strategic view on a number of specific issues’, and the ‘rifle-shot, rather than the scatter-gun, approach’ to seeking out multinationals adopted by the IDA since the 1980s (McSharry and White, 2000: 363-4, 368, and passim).

Other factors often highlighted

View entire sample
Join StudyHippo to see entire essay