University of Leipzig

The Economic Boom in Ireland

by

 Christiane Strobel

Contents

1. Introduction 4

2. Ireland’s Recent Economic History 4
2.1 The Protectionist Era  4
2.2 Outward Orientation and Europeanisation  6

3. The Causes for Economic Growth 9
3.1 Multi-National Companies 9
3.2 Fiscal Adjustment 11
3.3 Human Resources 13
3.4 European Integration  16

4. Conclusion  18

Tables  19

Bibliography  20

1. Introduction

At the end of the 1980s, the future of the Southern Irish economy appeared bleak. Economic growth stagnated, unemployment was very high, the state had chronic budget deficits and was the most indebted in Europe. About ten years later, things have changed completely: every year since 1994, Ireland has shown the highest economic growth rates in Europe, and in 2000, its growth rate of 11.5 per cent of GDP was the highest ever recorded in an OECD country¹. Unemployment is falling steadily, the budget surplus is rising, and the level of indebtedness falling. Living standards converge rapidly on average European standards. Ireland’s economic performance over that period has been such, that the phrase Celtic Tiger was coined, after the high-growth economies in East Asia². How could Ireland transform from its former bad state to a Celtic Tiger in only a few years? It is the target of this paper to identify how this extraordinary growth could be achieved. Therefore, I will firstly give a short summary of Ireland’s recent economic history, and later on investigate several important contributing factors.

2. Ireland’s Recent Economic History

2.1 The Protectionist Era

After having gained Dominion status in 1922, Ireland was an agricultural, backward country at the periphery of Europe without much industrial tradition. According to the Census of Industrial Production of 1926, only about 5 per cent of the labour force of the Irish Free State were engaged in manufacturing³. The economic policy during the 1920s was marked by a continuation of the policy before autonomy⁴. The Irish economy remained closely linked to that of Great Britain. There was a free trade relationship between the two countries. The Irish banking system was connected to the British one. In 1927, the Irish Free State established its own currency, the púnt, but the new currency was maintained at a one-to-one parity with pound sterling. The labour markets stayed especially closely connected, which means that Irish workers continued to move to Great Britain, as well as to the United States, in search of employment. When Eamon de Valera assumed office in 1932, an era of protectionism and ‘economic nationalism’ ⁵ started. De Valera’s approach towards economics was a rather idealistic one, as can be seen from his speech, broadcast on St Patrick’s Day 1943 ⁶:

The Ireland which we have dreamed of would be the home of a people who valued material wealth only as a basis of right living, of a people who were satisfied with frugal comfort and devoted their leisure time to things of the spirit; a land whose countryside would be bright with cosy homesteads, whose fields and villages would be joyous with the sound of industry, with the romping of sturdy children, the contest of athletic youths, the laughter of comely maidens; whose firesides would be forums for the wisdom of serene old age. It would, in a word, be the home of a people living the life that God desires that men should live.

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1 http://www.economist.com/coutries/Ireland

2 Antoin E. Murphy, p. 3.

3 Frank Barry, p. 31.

4 Antoin E. Murphy, p. 7.

5 Richard Kearney, p. 9.

6 J. J. Lee, p. 334.