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

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The Celtic Tiger 1988 1997 Europe’s shining light MAY 1997 24-Feb-19 The Economist 1988 1997 24-Feb-19

The Luck of the Irish? 2004 24-Feb-19

The “Celtic Tiger” – Annual GDP Growth Over the last decade, Ireland has been the fastest growing industrialised economy is the world, with growth faster even than that of the Asian “tiger” economies For this reason, Ireland has been dubbed by the international media as the “Celtic Tiger” Growth forecast of 5-6% per annum 2004-2010 24-Feb-19

The “Celtic Tiger” Fast growth has lifted average living standards to above average European levels – still a “wealth deficit” compared with the richer European countries If you know Ireland’s history, you’ll understand that in then late 1990s there was a great sense of achievement when GDP per capita in Ireland overtook that of the UK – “revenge is sweet” 24-Feb-19

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Migration trends have reversed 24-Feb-19

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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 24-Feb-19

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 24-Feb-19

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FDI Inward Stock (% GDP) 2003 24-Feb-19

Despite the reservations of many when the 10 per cent rate of corporation tax was introduced for the manufacturing sector and related services in the early 1980’s it is now seen to have been, perhaps, close to a revenue maximising rate of tax for the Irish Exchequer. It has had a major influence on the attraction of internationally mobile investment to Ireland or the retention of such investment here - including that of Irish origin. The single 12½% rate of corporation tax for trading income in all sectors of the economy, which was phased in over the period to 2003, provides a further major incentive for the development of the enterprise sector in Ireland. 24-Feb-19

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 24-Feb-19

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 24-Feb-19

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Rate of Retention to End of Senior (Secondary) Cycle Note: The rate of retention at second level corresponds to the estimated percentage of entrants to Junior Cycle in a given year who complete second level in a publicly aided school with a Leaving Certificate (including Leaving Certificate Applied). 24-Feb-19

Rate of Transfer to Third Level Note: The rate of transfer is estimated by taking the total annual intake to all full-time third-level colleges as a percentage of the estimated population at age 17. Some persons entering third level may have previously entered. Mature entrants and entrants from outside the State are also included. 24-Feb-19

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Macro Economic Stability Macro economic destabilisation in 1970s/80s Exchange Rate Mechanism Maastricht criteria and EMU membership – applicability to transition economies? Optimal currency area? ‘One Size Fits All” monetary policy 24-Feb-19

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 24-Feb-19

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-Feb-19

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? 24-Feb-19

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’ 24-Feb-19