From Rags to Riches the EU and Irelands

‘From Rags to Riches’: the EU and Ireland’s ‘Celtic Tiger’ Economy Andrew Mc. Dowell, Chief Economist, Forfás

1988 2 12/13/2021

MAY 1997 The Celtic Tiger Europe’s shining light The Economist 1988 3 1997 12/13/2021

The Luck of the Irish? 2004 4 12/13/2021

The “Celtic Tiger” – Annual GDP Growth 5 12/13/2021

The “Celtic Tiger” 6 12/13/2021

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Migration trends have reversed 8 12/13/2021

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Presentation Outline § EU Impacts on Ireland’s Transformation • An Outward Oriented Industrial Strategy • Improvements in Human Capital and Physical Infrastructure • Macro Economic Stabilisation • Competition, Market Liberalisation and Regulatory Reform • Improvements in Governance § Lisbon Agenda § Conclusion 10 12/13/2021

Outward Oriented Industrial Strategy § Low corporate taxes and other fiscal incentives (grant aid for FDI etc. ) § Improved transport access in and out of Ireland for goods and people § A light touch regulatory system § The provision of a skilled and flexible labour force § A pro-active industrial development policy, spearheaded by independent, professional and well resourced state agencies § EU membership 11 12/13/2021

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FDI Inward Stock (% GDP) 2003 13 12/13/2021

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Investment in Human Capital and Infrastructure § Structural Funds • European Regional Development Fund • European Social Fund • Guidance Section of the European Agricultural Guidance and Guarantee Fund (FEOGA) § Cohesion Fund § European Investment Bank § R&D Framework Programmes 15 12/13/2021

Investment in Human Capital and Infrastructure § Played an important, but not decisive role in Ireland’s economic transformation § Followed fiscal retrenchment – ‘additionality’ § Productive investment vs. subsidies/income supports § Physical infrastructure vs. education • Institutes of Technology, university, secondary school completion, science infrastructure • Commercial vs. ‘Public Good’ infrastructure • Private sector aids 16 12/13/2021

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Rate of Retention to End of Senior (Secondary) Cycle 19 12/13/2021

Rate of Transfer to Third Level 20 12/13/2021

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Macro Economic Stability § Macro economic destabilisation in 1970 s/80 s § Exchange Rate Mechanism § Maastricht criteria and EMU membership – applicability to transition economies? § Optimal currency area? § ‘One Size Fits All” monetary policy 22 12/13/2021

Competition and Regulatory Reform § ‘Behind the Border’ regulatory restructuring • • • Competition legislation Telecoms, energy Aviation Banking and financial services Professional services, postal services, logistics § Market-based regulatory models – appropriate for smaller countries? • Relationship with industrial and social policy § Services Directive 23 12/13/2021

Improvements in Governance § Operation of Structural and Cohesion Funds • Ex ante cost-benefit analysis • Multi-annual budgeting – National Development Plans • Ex post evaluation § Open Method of Co-Ordination § International Influence and Self-Confidence 24 12/13/2021

Lisbon Agenda § Too broad? § Lack of national political ownership – but problems occur at national, rather than EU, level § Challenges to services liberalisation § Revival of ‘economic patriotism’ § Decline of “Europeanism”? § Inappropriateness of U. S. model of competitiveness? 25 12/13/2021

Conclusions § EU membership alone will not drive convergence § Capacity of the state for strategic action? § Consistent strategy to exploit EU membership? § Unique selling point? § Potential small country advantages in globalisation • • Lack of bureaucracy Proximity of main economic actors Policy innovation and radicalism ‘First mover advantages’ 26 12/13/2021