Transcript Irish Economic Development - leavingcertgeography

FROM AGRICULTURE TO
SOFTWARE IN THREE DECADES:
Ireland’s catch-up
within the European Union
Figure: GDPandGNPper head,
PPS, EU15=100
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
1960 1970 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
GDP
GNP
Major themes
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•
[1] The early years of independence
[2] Ireland opens to the world: post 1960
[3] The long hard march! 1960-1989
[4] Rescued by Structural Funds? 1989-2004
[5] The Celtic Tiger roars! 1994-2002
[6] The foreign high-technology sector
[7] Implications of EU enlargement
[1]
The early years:
1922-1960
Free at last! 1922
• Major industrial base on the island was in
Northern Ireland, which remained in the UK
• The new Irish state had almost no
manufacturing base
• An agricultural economy, supplying the British
market at depressed prices
• High birth rate, high emigration, declining
population
The first Irish economic strategy:
import substitution
• Imposition of high tariff protection in 1930s
• Attempt to build a locally owned
manufacturing sector behind tariff barriers
• Strict controls on foreign ownership of firms
• Tariffs remained in force until early 1960s
Share of Irish exports going to the United
Kingdom: pre-modern era
GDP per head, PPP: EU-15=100
Country
1960
Belgium
97.4
Denmark
126.0
Ireland
63.2
Greece
43.7
Portugal
40.6
Spain
59.4
Pre-industrial Ireland
[2]
Ireland opens to the world:
post 1960
Initial policy changes: 1960
• Quick removal of tariff barriers
• Zero rate of corporation tax (on exports)
• An attractive range of investment
incentives
• Training grants for firms
• Basic reforms in the second level
education system
A new economic strategy:
Export-led growth
The crucial role for
Industrial Strategy
• The “Nordic” model: Focused on
indigenous industry
• The “Irish” model: Focused on foreign
direct investment
The “Nordic” model
(Denmark, Finland)
• Selected segments of indigenous industry,
to increase efficiency and export market
share
• The serious entry barriers: need for new
product development, efficient
marketing/distribution
• Domestic skill and cost base crucial
The small country “squeeze”
The “Irish” model
• Policy aimed at attracting exportoriented foreign direct investment
• Attractiveness of business and productive
environment to capture greater share of
mobile investment
• Being inside EU helps!!!
• “Jobless” growth for a while, as old
industries fail
Industrial strategy
Picking winners? No!
Picking winning environments!
“Winning environments” are public goods
[3]
The long hard march!
1960-1989
Ireland’s changing policy
environment
• 1922-1960: A dependent small
underdeveloped state on the periphery of
the United Kingdom
• 1960 onwards: A small regional
modernising economy progressively
integrating into an encompassing
European economy
Globalisation and small states
“The real economic challenge ... [of a country or
region] ... is to increase the potential value of
what its citizens can add to the global economy,
by enhancing their skills and capacities and by
improving their means of linking those skills
and capacities to the world market."
Robert Reich
GDP per head, PPP: EU-15=100
Country
1960
1973
1986
Belgium
97.4
102.8
104.3
Denmark
126.0
120.9
117.8
Ireland
63.2
62.3
65.9
Greece
43.7
71.0
62.8
Portugal
40.6
57.5
54.5
Spain
59.4
77.2
71.8
[4]
Structural Funds: 1989-2006
A boost to Irish convergence:
the rise of EU regional aid policy
in the late 1980s
Why Structural Funds?
• EU Enlargement after 1973: The “poorer”
countries join (Ireland, Greece, Portugal,
Spain)
• The need to prepare for market integration (the
Single European Market and Monetary Union)
• EU Budgetary reform and an increase in
regional aid allocations after 1989
The goal of EU regional
investment aid policy
“To design and implement policies with the
explicit aim of transforming the underlying
structure of the (poorer) beneficiary economies
in order to prepare them for exposure to the
competitive forces unleashed by the Single
European Market and Monetary Union”
How does EU regional investment
aid work?
• EU financial aid with domestic co-financing
• Monitored “national development planning”
• Improvement of physical infrastructure (roads,
rail, ports, telecommunications)
• Improvements in human resources (training,
education)
• Direct investment aid to productive sectors
(marketing, design skills, R&D)
[5]
The Celtic Tiger roars!
1994-2002
Figure: GDPandGNPper head,
PPS, EU15=100
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
1960 1970 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
GDP
GNP
Irish GDP growth, before and
after Structural Funds
10
9
8
7
6
5
4
3
2
1
0
1970-75
(Including forecasts)
1975-80
1980-85
1985-90
1990-95
1995-00
2000-05
2005-10
2010-15
2015-20
19
7
19 5
7
19 6
7
19 7
7
19 8
7
19 9
8
19 0
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
01
G
overnm
entE
xpenditure,%
ofG
D
P
60
55
50
45
40
35
30
25
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
National Debt,%of GDP
125
100
75
50
25
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
Current Account Balance, %of GDP
5
0
-5
-10
-15
GDP per head, PPP: EU-15=100
Country
1960
1973
1986
2002
Belgium
97.4
102.8
104.3
105.7
Denmark
126.0
120.9
117.8
120.8
Ireland
63.2
62.3
65.9
122.0
Greece
43.7
71.0
62.8
69.9
Portugal
40.6
57.5
54.5
73.7
Spain
59.4
77.2
71.8
83.9
[6]
The role of the foreign
high-technology sector
The Irish “virtuous circle” of
economic development
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Initial clustering in niche high technology
areas (mainly foreign)
Generates local demand for skilled workers:
human capital
Further spillovers to local firms:
infrastructure
A stable monetary/fiscal environment and
social partnership
• Openness to rigors of international competition
necessary but is not sufficient.
• Four domestic policy strategies accompanied
external orientation
(1) Stable domestic macroeconomic policy
environment;.
(2) Build-up of quality and quantity of education and
training of the workforce.
(3) Improvement in quality of physical
infrastructure.
(4) Improved management, quality marketing, better
services, lower costs of utilities, linkages with
complementary activities (or clustering)
“Competitiveness is the ability of
companies, industries or nations to
generate relatively high factor income and
factor employment levels on a sustainable
basis, while being and remaining exposed to
international competition”
Quoted in Maskell and Tornqvist (1999),
Building a Cross-Border Learning Region, Copenhagen
[7]
The new enlarged
European Union:
implications for the future
Context is important!
• Economic development from a low base
within a given political/economic regime
(Ireland, Portugal, Greece)
• Reversing decline after a
political/economic regime switch (Eastern
Europe)
Estonia recovers: 1991-2002
GDP
GDP per capita
115
105
95
85
75
65
55
1990
1992
1994
1996
1998
2000
2002
The two phases of transition
• Phase 1: Initial institution building, sectoral
re-organisation and re-allocation
-> Early CEE entrants to EU: 1989-1995
-> Late entrants to EU: ?????
• Phase 2: Growth and convergence
processes operate in a context of fairly
stable but evolving institutional framework
Stages of transition and
convergence in Eastern Europe
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•
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Progressive trade integration with EU
Foreign direct investment inflows
Technology transfer
EU-aided investment programmes, mainly for
the support of infrastructural and humancapital development.
Copy Ireland?
Risks with the Irish strategy
• Too heavy a dependence on foreign direct
investment?
• Foreign direct investment (FDI) is concentrated
into a narrow range of technologies that can
quickly move through maturity and into
decline
• Loss of “first mover” status and greater
competition for FDI
Some lessons from Ireland for
transition economies
• Adaptation to external market forces, but
consistent with social objectives
• Detailed comprehensive sectoral
“planning” inapplicable because of
openness
• Strategy must be flexible, reactive and
incremental
The key lesson from Ireland
• The intelligent combination of economic
policy and business strategy generated
huge synergies in terms of national
growth and convergence
Characteristics of
“good” governance
• Assessing strengths and weaknesses
• Recognising trade-offs between policy
options, and building coalitions for action
• Building a healthy business-government
relationship
• Enhancing government-government cooperation
Challenges for less developed
economies of Eastern Europe
a) Development and renewal strategies must be
at the centre of government activity
b) Optimising the “software” of human capital
is the single most important act of
government
c) Researchers and policy-makers in Eastern
Europe need to engage increasingly in the
emerging EU regional debate