Transcript TOPIC A: Irish Economic History to Independence

TOPIC G:
INTERNATIONAL TRADE
& COMPETITIVENESS
TCD M.SC.(EPS) – RONAN LYONS – EC8001
IRISH ECONOMIC POLICY ISSUES & CONTEXT
MODULE OUTLINE
Topic Title
EoI Ch
Dates
A
Irish Economic History to Independence
1+
MT1-2
B
Irish Economic History since Independence
1+
MT3-4
C
The Economy & Economic Growth
2, 7
MT5-6
D
Public Finances, Debt & Taxation
3, 4
MT8-9
E
The Labour Market
6
MT10-11
F
Social Justice & Inequality
8
HT1-2
G
Regulation & Competition
5
HT3-4
H
Competitiveness & Trade
9, 11
HT5-6
I
Health & Education
12, 13
HT8-9
J
Natural Resources & Real Estate
10, 14*
HT10-11
READING & DATA
• Economy of Ireland: Ch. 9, 11
• Other readings
• World Bank Doing Business project/dataset (again!)
• National Competitiveness Council’s 2014 Annual
Competitiveness Report: Scorecard and Policy Challenges
• IBM Global Locations Trends, 2014 Annual Report
• EIU/Matheson 2012 report “Investing in Ireland”
TOPIC G: STRUCTURE
Trade & Competitiveness
1.
2.
3.
4.
5.
Agri-food
Manufacturing & Services
“Industrial Policy”
Measuring competitiveness
Ireland’s competitiveness
PRODUCTION, TECHNOLOGY & TRADE
• Production function and
technology
• What can be produced?
• What can be traded?
• Importance of
transportation
technologies
• E.g. steam power,
refrigeration, airplane
• Also communication
technology
(transportation of ideas),
e.g. telegraph, internet
Y
Production function:
relationship between inputs
(K, L, A) and outputs (Y)
Y1
Y = f(A*, K, L, N)
Y0
Y = f(A, K, L, N)
L0
L
DEVELOPMENT & TRADE
• General path for economic structure:
• Agriculture -> manufacturing -> services
• General path for trade:
•
•
•
•
High value-to-weight (e.g. spices, metals) ->
Commodities (e.g. grain) ->
Merchandise (e.g. cars) and now ->
Significant trade in services
• Why trade internationally?
• At individual level, “Smithian growth” – greater
specialization means greater incomes
• Same principle holds at city, country or continental level
AGRI: KEY INDIGENOUS SECTOR
• Throughout Ireland’s economic history, agricultural
produce (incl live animals) a major export
• Long-standing comparative advantage, in wider
region, due to climate
• Currently ~8% of the economy and ~4% of exports...
but 70% of land and nearly one-third of GHG
emissions
• Cf. scale of domestic demand: food/drink about
18% of household expenditure
• Comparable with share spent on housing
INTERVENTION-RICH
• Significant interventions by government (EU and
national):
• EU agri tariffs ~18% on average (and more than
100% in some cases), vs 4% for other goods
• CAP: dual goals of price stabilisation and income
support
• Conflict between “fair standard of living” for farmers and
“reasonable price” for consumers?
RATIONALE FOR INTERVENTION
• Food security (cf. debate on energy security)
• Price volatility - supply susceptible to shocks,
inelastic demand
• Structure of production: dominated by family farms
(need not be - cf. NZ), scale and scope economies
under-exploited
• Family-run nature leads to greater specialization
(thus greater risk of price shocks)
• Unmatched lobbying ability in Ireland… and in EU?
THE EVOLUTION OF CAP
• Origins of CAP: import tariffs, intervention price
• Ensured a high domestic price, where food deficits existed
• Growing self-sufficiency meant switch to export
subsidies
• High prices -> excess production, but only at EU prices
• Dumping on international markets plus huge budget
• MacSharry reforms 1993:
• Reduction in price supports, switch to income supports
(direct payments)
• Broader rural focus of CAP
• Extended in “Agenda 2000” (pre-enlargement)
• “Coupled payments” – subsidy based on production
CAP IN THE 21ST CENTURY
• Issue: farmers now cut off from market demand
• Production to get subsidy, not to serve demand
• Fischler reforms, 2003: “single farm payment”
• 2000-2002 reference period – income subsidy based on that
• Decisions to produce linked again to the market – could
refrain from producing and still receive income
• Cross-compliance condition
• Standards of animal/environmental welfare must be met
• 2008 Health Check – reforms extended to other
markets (including cotton, olive oil, sugar)
• Sugar market reforms ended sector in Ireland
• Only limited “coupled payments” remain
IRELAND AS (NET) PRODUCER
• Comparative advantage in diary, cattle products
• Cf. Topic A – dairy to tillage and back in 19thC
• Dwindling size
• Absolute: from 330,000 in agri 1960 to 87,000 in 2012
• Relative: now less than 5% of the labour force
• Structural adjustment
• More than half of sector over 55yo, vs. 40% in 2003
• Exit process not smooth, due to age, skill and location
profile of sector
• Issue of agglomeration economies and rural brain
drain (cf. discussion of rural competitiveness later)
WORLD AS CONSUMER
• Prices falling in real terms since
1950s: role of technological
change (supply) vs. preferences
(demand)
• But prices rose 2008-2011: a "new
era" or a blip? Cf. 2014 figures
• Demand side: Rising incomes in
developing countries, switch into
meat and dairy products
• Supply side: greater competition
for land use (biomass, biofuels)
TOPIC G: STRUCTURE
Trade & Competitiveness
1.
2.
3.
4.
5.
Agri-food
Manufacturing & Services
“Industrial Policy”
Measuring competitiveness
Ireland’s competitiveness
TAXONOMY OF TRADE
• Agri-food sector (as per above)
• “Traditional manufacturing”
• Leather, rubber, cork/wood, paper, textiles
• Iron & steel, machinery, transport
• “Modern manufacturing”
• Chemicals (in particular pharmaceuticals)
• Office and electrical machinery, telecomms equipment
• Internationally traded services
• Financial & computer services
• Business services (such as consulting)
• Leasing
MODERN VS. TRADITIONAL
CATEGORIES OF SERVICE TRADE
• General Agreement on Trade in Services (GATS)
1. Cross-border trade, e.g. online education taken by
overseas students
2. Consumption abroad, e.g. tourism
3. Commercial presence, e.g. UK banks trading in Ireland
4. Presence of natural persons, e.g. Irish engineer travelling
to project overseas
• Information & communication technologies affect
primarily (1) above
• Transport technology affects (2) and (4)
• (3) is typically controlled through regulation/policy
CHANGING CONTEXT OF TRADE
• Growth of services exports
• Services 80% of activity in OECD and growing share of
exports
• Pressure on statistical systems that treat services as residual
“black box” sector
• Fragmentation of global supply chain
• Importance of intra- as well as inter-firm trade
• US 2009: ~60% of all OECD imports intra-firm, ~33% of all
OECD exports
• Supply chains: spiders vs. snakes
• What gets offshored? What stays ‘at home’?
OFFSHORING
• Offshoring vs. outsourcing
• Offshoring: within-firm relocation of activity
• Outsourcing: involving external firm (local or foreign)
• Common motivation: focus on ‘core competences’
• Relatively expensive unskilled labour in OECD
means tasks intensive in unskilled labour offshored
• E.g. assembly line
• Service activities – in particular involving skilled
labour – remaining in OECD
• Outcome: fall in manufacturing as % of GDP
“SERVICIZATION”
Ireland’s Exports (€bn, 4QMA)
Services
Merchandise
200
180
160
140
120
100
80
60
40
20
0
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
200
180
160
140
120
100
80
60
40
20
0
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
IRELAND AS A SERVICES LEADER
Ireland’s Imports (€bn, 4QMA)
Services
Merchandise
ISSUES OF MEASUREMENT
% of trade in services
100,000
Other
90,000
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Business
80,000
Leasing
70,000
R&D
60,000
Royalties
50,000
Computer
40,000
Financial
Insurance
30,000
Comm'ns
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
20,000
Tourism
10,000
Transport
Repairs
0
Exports Imports
EXPANDING FRONTIER OF TRADE
• Boundary between
manufacturing and
services not fixed
• Cf. Windows 95 vs.
Windows 10
• Boundary between
traded and non-traded
sectors not fixed
• E.g. health (Bahrain) and
education (Australia) as
an export
• Construction?
TOPIC G: STRUCTURE
Trade & Competitiveness
1.
2.
3.
4.
5.
Agri-food
Manufacturing & Services
“Industrial Policy”
Measuring competitiveness
Ireland’s competitiveness
WHAT IS THE MARKET FAILURE?
• What is the economic rationale for policy in relation
to trade, industry or enterprise?
• For physical infrastructure, economies of scale
• Cf. Topic G – natural monopolies
• For human capital, positive externalities
• Cf. Topic D – subsidies required, otherwise under-provided
• Particularly if capital markets are missing
• For targeting regions, level playing field?
• But what about agglomeration economies foregone?
• For targeting sectors/firms, ???
• Information failures? Missing capital markets?
FROM TARIFFS TO INDUSTRIAL POLICY
• Traditional form of trade policy:
• Raise tariff barriers in response to negative shock to
domestic economy (this could be increased competition
from abroad)
• Should boost local production, at expense of foreign
• Cf. 1780s response of British industry to prospect of free
trade with Ireland
• Early 20th C: common form of business cycle policy
• Beggar-thy-neighbour: reduces specialization so negativesum game (lower incomes at home ultimately also)
• Post-WW2: focus on “industrial policy” – grants to
companies to export
FROM INDUSTRIAL TO ENTERPRISE
• Growing “servicization” of trade means name shift,
from industrial to enterprise policy
• Content shift also, as both WTO and EU rules place
strict conditions on policies favouring specific
firms/sectors
• Three key elements of enterprise policy in Ireland:
• Taxation of business
• Direct grants
• Regional development policy
• Foundations in 1960s and 1970s
• 1960s (and 1950s): switch from autarky to openness
• 1970s (and 1980s): entry into world’s largest market
BUSINESS TAXATION
• Low corporate tax rates
• From “double taxation” to “double non-taxation”
• ‘Aggressive tax planning’ and tax avoidance
• 2013: OECD BEPS 15-point Action Plan
•
•
•
•
•
•
•
Address challenges of borderless digital economy
Neutralise “hybrid mismatch” arrangements
Strengthen CFC rules and limit base erosion
Counter harmful tax practices
Prevent treaty abuse
Align transfer pricing with value creation
Require disclosure of tax strategies
DIRECT GRANTS
• Policies focused on business income, rather business
prices (tariffs)
• 1950s: capital grants for companies producing for export
• E.g. of Fyffes – manufacturing status important
• More targeted grants from 1970s
• Training and R&D, plus loan guarantees
• Under EU rules, grants based on geography, skill level and
activity type (in favour of high tech)
• Milestones in industrial policy
• Telesis Report (1984): greater focus on domestic industry
• Culliton Report (1992): switch from grant-based to general
improvement in competitiveness
REGIONAL DEVELOPMENT
• Clash of politics and economics
• Constituencies move a lot more slowly than people
• EU Structural Funds:
• to help under-developed regions
• A success in Ireland given lack of migration to cities, 19952007? Or a result of credit bubble?
• In general, rationale for attracting FDI could be to
create cluster – agglomeration economies
• Productivity spillovers, impact on enterprise
CHALLENGE OF “PICKING WINNERS”
• Who wins the taxpayer’s money?
• Regional politics
• Focus on “trendy” sectors, buzzwords
• Cf. current “priority sectors”:
• Health informatics, financial analytics, digital lifestyle
management, tourism, the food sector, life sciences,
software, the creative arts, next generation networkenabled sectors, construction, ageing-related activities…
• What is the impact on policy effectiveness?
WHEN POLICY MEETS REAL WORLD…
• Lisbon Agenda, 2000:
• Make the EU “the most dynamic and competitive
knowledge-based economy in the world capable of
sustainable economic growth with more and better jobs
and greater social cohesion, and respect for the
environment by 2010”
• Europe 2020 Strategy, 2010:
• Significantly more modest in its goals
• Response to crisis
• Still refers to goal of “smart, sustainable and inclusive
economy”
FIT-FOR-PURPOSE STATISTICAL
INFRASTRUCTURE?
We know all this and more…
…but only this
Export of cattle by month (000s)
Service exports, 2014Q3
1970M01
1973M04
1976M07
1979M10
1983M01
1986M04
1989M07
1992M10
1996M01
1999M04
2002M07
2005M10
2009M01
2012M04
90
80
70
60
50
40
30
20
10
0
Other
Business
Leasing
R&D
Royalties
Computer
Financial
Insurance
Comm'ns
Tourism
Transport
Repairs
0
2500 5000 7500 10000
Source: Central Statistics Office
TOPIC G: STRUCTURE
Trade & Competitiveness
1.
2.
3.
4.
5.
Agri-food
Manufacturing & Services
“Industrial Policy”
Measuring competitiveness
Ireland’s competitiveness
THE STAKES
NARROW VS. BROAD
• Competitiveness and productivity are closed
related
• Both measure of ‘bang for buck’
• Narrow competitiveness:
• Central Bank of Ireland measures output per worker,
adjusting for change in costs
• Broad competitiveness:
• What is the set of factors that affect where mobile capital
decides to locate?
• Productivity relative to wages is a symptom… but what
causes a high level?
CBI’S MEASURE OF COMPETITIVENESS
Index of unit labour costs (1999=100)
150
140
130
120
Real (GDP)
110
Real (L costs)
100
90
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
80
COMPETITIVENESS RANKINGS
• WEF Global Competitiveness Index
• Since 2005; ~145 economies; heavily survey-based
• Ireland ranked 25th in 2014 (up from 28th)
• IMD World Competitiveness Yearbook
• Since 1989; ~60 economies; 1/3 based on exec survey
• Ireland ranked 15th in 2014 (up from 17th)
• World Bank Doing Business rankings
• Since 2004: ~190 economies; based on concrete (often
regulatory) measures
• Ireland ranked 13th in 2014 (up from 17th)
WEF GLOBAL COMPETITIVENESS INDEX
Ireland
UK
Cyprus
France
40
50
2014
2013
2012
60
2011
• Business sophistication,
innovation
30
2010
• 2x Innovation &
sophistication
20
2009
• Higher education, goods
markets, labour market,
financial market, tech
readiness, market size
10
2008
• 6x Efficiency enhancers
0
2007
• Institutions, infrastructure,
macroeconomy, health/
primary education
WEF GCI Ranking
2006
• 12 Pillars
• 4x Basic requirements
WEF RELIANCE ON SURVEYS
•
•
•
•
•
•
•
•
•
•
•
•
Institutions: 26 indicators (25 survey-based)
Infrastructure: 9 indicators (6 survey-based)
Macroeconomy: 5 indicators (0 survey-based)
Health, primary education: 10 indicators (4 survey-based)
Higher edu/training: 8 indicators (6 survey-based)
Good markets: 16 indicators (11 survey-based)
Labour market: 10 indicators (2 survey-based)
Financial market: 8 indicators (9 survey-based)
Technological readiness: 7 indicators (3 survey-based)
Market size: 4 indicators (2 survey-based)
Business sophistication: 9 indicators (9 survey-based)
Innovation: 7 indicators (6 survey-based)
WEF: ISSUES AND LIMITATIONS
• 70% of the input indicators are based on the survey
• Sample composition? Sample size? Internationally
comparable?
• Inclusion of absolute size variables
• “Available airline seat kilometers, millions of seats km/week”
• GDP (in $PPP billions)
• Other issues…
• Relevance: Ireland ranks 22nd for “how serious an impact will
tuberculosis have on your company in the next five years?”
• Linearity: 95% primary enrolment = rank of 62nd
• What is it measuring?
• If MNCs in Ireland said competitiveness improved hugely
2007-2011, why did Ireland’s ranking worsen?
IMF YEARBOOK
• Four factors, each with five sub-factors:
•
•
•
•
Economic Performance (83 criteria)
Government Efficiency (70 criteria)
Business Efficiency (71 criteria)
Infrastructure (114 criteria)
• Based ultimately on two sets of indicators
• 135 “hard data” indicators
• 118 results from survey
• Thoughts…
• What is the aim? Is “economic performance” an input or an
output?
WORLD BANK DOING BUSINESS
• Ten headings:
•
•
•
•
•
•
•
•
•
•
Starting a business: 4 indicators
Main indicators:
Construction permits: 3 indicators
1. # procedures
Getting electricity: 3 indicators
2. Time in days
3. Cost in €/$
Registering property: 3 indicators
Getting credit: 4 indicators
Protecting minority investors: 9 indicators
Paying taxes: 6 indicators
Trading across borders: 8 indicators
Enforcing contracts: 3 indicators
Resolving insolvency: 9 indicators
• Based largely on procedures & time/money costs
SAMPLE WB-DB RANKING
TOPIC G: STRUCTURE
Trade & Competitiveness
1.
2.
3.
4.
5.
Agri-food
Manufacturing & Services
“Industrial Policy”
Measuring competitiveness
Ireland’s competitiveness
NCC’S OVERVIEW OF RANKINGS
(WITHIN OECD)
IRELAND’S STRENGTHS & WEAKNESSES
140
Ireland’s hit-list:
1.Construction permits
2.Electricity connection
3.Registering property
100
80
60
Singapore
40
NZ
UK
20
Ireland
Insolvency
Contracts
Trade
Taxes
Investors
Credit
Property
Electricity
Construction
Starting
0
Overall
2015 DB Ranking
120
Insolvency
Contracts
Trade
Taxes
Investors
Credit
Property
Electricity
Construction
Starting
Overall
2015 DB Ranking
IRELAND’S STRENGTHS & WEAKNESSES
70
60
50
40
30
Singapore
20
NZ
10
UK
Ireland
0
REFORM SIMULATOR
• See:
http://www.doingbusiness.org
/reforms/reform-simulator
• Four scenarios
• (0) As-is
• (1) “Going Singapore” on
construction permits (same
procedures but faster and
cheaper)
• (2) 1 + shaving 1 procedure
and 20 days off electricity
• (3) 2 + shaving 1 procedure
and 10 days off registering
property
Ireland's DB rank
14
12
10
8
6
4
2
0
Scen0 Scen1 Scen2 Scen3
COMPETITIVENESS OUTCOMES
QUALITY & QUANTITY?
DUBLIN A GLOBAL HUB
RURAL COMPETITIVENESS
• House prices and wages are higher in Dublin than
elsewhere in Ireland…
• Why is Dublin, not rural Ireland, benefiting from a national
FDI policy and infrastructure?
• Cf. discussion of agglomeration economies in Topic A
• Can rural areas be globally competitive? What
have they a comparative advantage in?
IMAGINATION REQUIRED…
• ~1,800 destination weddings a year in Ireland
• ~ 200,000 tourist trips through wedding guests
• Annual spending of ~€130m (including couples’ spend)
• Based on broader tourism sector figures, this means
“destination weddings” currently sustain 4,700 jobs
• A largely “excluding Dublin” phenomenon
• Dublin: ~1/3 of population but about ~1/6 of weddings
• Increasing destination weddings to 5,600 per year
would generate an additional 10,000 jobs
• Opportunity: change in regulation around weddings
• Means: rural Ireland’s natural and architectural beauty
• Motive: jobs where they are needed most
RECAPPING…
• Progression of trade with technology
• (Gradually) escaping the limits of value-to-weight ratio
• Sector-specific issues
• Agriculture: firm structure, dependence on intervention
• Manufacturing: MNC-dominated… on the decline?
• Services: increasingly traded – but what is real?
• Competitiveness
• Issues around measurement (cf. poverty?)
• Inputs vs. outputs vs. outcomes
• Modern competitiveness – agglomeration, competitive
advantage
ESSAY & EXAM-STYLE QUESTIONS
1. Should trade policy be focused more on
producers or consumers? Discuss with reference to
past and current Irish policy.
2. “Due to the pull of cities, Ireland’s rural regions
cannot be internationally competitive.” Discuss.
3. “Ireland is one of the most competitive countries in
the world.” How is competitiveness measured and
do you agree with this statement?