Perspectives on the Celtic Tiger

1
Perspectives on the Celtic Tiger

• Jim OLeary
• Dept of Economics
• NUI-Maynooth

2
Overview

• Key characteristics of Ireland
• Economic performance
• Explaining the Celtic Tiger phenomenon

3
Key characteristics

• Size
• Openness
• Location
• Late industrialisation
• Politics

4
Population of EU Member States
Irelands population is comparable to that of the
Noreste region of Spain or the Comunidad Valencia
5
Dimensions of openness

• International trade
• Foreign direct investment
• Mobility of labour

6
International Trade/GDP ()
Irelands ratio has fallen from a peak of 184 in
2001
7
Foreign Direct Investment (Ratio of FDI Stock to
GDP, 2000)
8
Annual migration flows ( of population)
9
Location

• Geographic an island off an island off the
  north-west coast of Europe
• The next parish is Boston
• Cultural Anglophone firmly within the
  Anglo-Saxon sphere of influence
• Location as a determinant of emigrants
  destinations

10
Industrialisation and politics

• Ireland a late industrialiser
• Avoided the class-based political cleavages of
  other societies
• No significant left-wing political party
• Continuity of economic policies
• Elections are about who governs, not what they do
  in government
• Government is highly centralised

11
Economic performance

• GDP growth
• Growth in living standards
• Employment and unemployment
• The millennium watershed

12
Economic growth, 1967-2007(7-year moving average)
Peak performance reached in the 1993-2000 period
(GDP growth 9.5 p.a.)
13
GDP growth rates in EU25,(1993-2000)
Note how much faster Irelands growth rate was
than those of the other original Structural Fund
beneficiaries (Portugal, Spain and Greece)
14
GDP growth rates in EU25,(2000-2007)
In this period, Irelands growth rate bettered
only by some of the new Accession States
15
Ireland GDP per capita(EU15100)
Note that GDP per capita exaggerates Irelands
current position. GNP is about 85 of GDP in the
Irish case.
16
Ireland GDP per capita growth vs trend
Suggests that the Celtic Tiger was a catch-up
phenomenon, following the underperformance of the
late 1970s and early 1980s.
17
Employment Ireland and EU15(1980100)
Employment in Ireland has grown by more than 4
p.a. since 1993 (over 5 p.a. between 1993 and
2000)
18
Ireland and EU15 Unemployment Rates
19
The millennium watershed

• Significant changes in pace and composition of
  growth from 2000
• Overall growth rate has slowed, dampened by steep
  deceleration of export growth
• Housing output has continued to grow at robust
  pace
• Note also the decline in productivity growth

20
The millennium watershed employment trends

• Employment in manufacturing has fallen since 2000
• Pace of increase in private services employment
  has slowed sharply
• Construction and public sector together have
  accounted for almost two-thirds (64) of overall
  gain compared with one-third in 1994-2000
• Construction in 2007 accounted for more than
  one-in-seven (14.7) of non-farm employment

21
Explaining the Celtic Tiger

• Demography
• Education
• Geography
• Tax cuts
• Europe and the euro
• Social partnership

22
Demography

• Irelands late baby boom
• The economic emancipation of women
• The reversal of migration flows

23
The Baby Boom Annual Average Births (000s)
The number of births peaked in 1979, the year the
Pope visited Ireland. Hence todays generation of
twenty-somethings are known as The Popes
Children!
24
Womens Liberation Female Labour Force
Participation Rates ()
25
Changing Migration FlowsNet Migration (000s)
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Demography Cause or Effect?

• Demographic trends help to define the economys
  potential growth rate
• Economies dont always achieve potential
• Demographic trends are endogenous
• Strong labour force growth a necessary but not a
  sufficient condition for the Celtic Tiger

27
Economic Geography

• The importance of time and place
• The 1990s globalisation high-tech boom
  resurgent US economy
• Ireland access to EU attractive incentives
  suitably skilled labour
• The power of agglomeration economies and
  demonstration effects
• Ireland a place whose time had come

28
FDI and Exports, 1993-2000

• Employment in overseas firms 8.2 pa
• Industrial production 16.2 pa
• Export volumes 17.7 pa
• Net increase in employment in overseas firms
  60,000

Exports rose from 66 to 100 of GDP over this
period
Net increase in employment in overseas firms and
their suppliers of inputs estimated at 120,000
29
Taxes in selected countries of GDP)
30
Public spending and taxation( of GNP)
31
Composition of tax revenues
32
Average tax rates _at_ average earnings
33
The role of tax cuts

• Rolling back the crisis psychology of the 1980s
• Stimulating labour supply
• Improving cost competitiveness
• Two-way causation tax cuts ? economic growth ?
  tax cuts
• Low corporation tax a key factor

34
The role of Europe

• Access to European markets
• ERDF financing
• Exchange rate policy
• Low interest rates
• The downside of the euro