The Macroeconomic Determinants and Effects of Economic Growth in Ireland
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Publication date: 2008-06-30
GNPJE 2008;224(5-6):111-130
The authors describe a combination of factors that have influenced economic growth in Ireland. The study relies on description methods, tabular analysis and synthesis. Ireland joined the European Community in 1973, but the first few years of membership brought no major benefits for the country. This means that European Community membership alone was not enough to spur the Irish economy, Heller and Ewertowska note. In the initial period after joining the European Community, Ireland experienced stagnation and a regression that eventually led to stagflation, an extremely dangerous trend that lasted from 1981 to 1983. It was not until 1984 that the Irish government brought inflation under control and kept in check effectively for many years. This successful campaign against inflation was the first macroeconomic development that laid the groundwork for sustained economic growth in Ireland, the authors say. In 1987-1997 four social partnership agreements were made in Ireland. The reforms combined neoliberal concepts with state intervention. The government streamlined expenditure, reduced the budget deficit and public debt, accelerated privatization, and reduced the rate at which pay grew, in addition to cutting non-wage labor costs. At the same time, the government offered tax breaks and preferential treatment to investors in selected industries and it also granted subsidies to those providing employee training and retraining programs. These measures were supported by an inflow of foreign direct investment and funds from European Union coffers. All these efforts were oriented toward structural changes in the infrastructure sector and the economy as a whole. As a result, Ireland stopped being a poor and backward country that it was when it joined the European Community in 1973. It grew into one of the wealthiest countries in the EU. In 1973, Ireland’s GDP per capita was just 64 percent of the EC average. In 2005, the country’s GDP per capita accounted for 139 percent of the EU average and was the second-highest in the EU after that of Luxembourg. The main source of Ireland’s success story has been the country’s ability to skillfully combine market (neoliberal) mechanisms with state intervention, Heller and Ewertowska say. This means that Ireland is not a liberal country according to the definition used in classical economics, the authors conclude.
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