[Author’s Name]
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Essay on Economic Growth
At the end of the 1980s the future of the Irish economy did not look good. Economic growth was stagnant, unemployment was at a historic high and exceeded that of all other European Union countries except possibly Spain, and the state was one of the most indebted in the world. Socially, things appeared to be going from bad to worse because the state was compounding the economic miseries with an austerity programme that shut down or cut back many facilities for the poorest sections of the population.
By 1994, however, the southern Irish economy began to boom. GDP growth rates rose to 5.8 per cent and have remained at least as high since. Southern Irish per capita national income, which had been barely 60 per cent of the EU average in 1988, reached the EU average a decade later, by the late 1990s.
The sources of Irish growth are debated. Most economists credit Irish success to fiscal restraint, social partnership agreements that assured pay restraint and flexible labor, the accumulation of highly educated human capital, exchange rate stability and a generally stable macroeconomic environment. Taken one step further, the Irish case has been used to support what now appears to be the EU orthodoxy with respect to economic policy and convergence: if a country maximizes the openness of its trade, gets the macroeconomics right and encourages labor flexibility it willconverge. The same medicine is prescribed for the accession countries, which have even further to go than the EU periphery.
In the Irish case, at least, the correlation between macroeconomic stability and economic growth is spurious. Or, to put it more precisely, Irish economic growth was due to a very special set of (mostly exogenous) circumstances that cannot be replicated in other countries......
