Irish Growth in Historical and Theoretical Perspective

Abstract

The nature of the Irish economy, and the definition of Ireland's economic problem, were shaped by a combination of events that occurred in the nineteenth century. One of these was the large-scale emigration that the Great Famine induced. This left as its legacy a willingness and an ability on the part of the population to migrate when economic prospects elsewhere seemed brighter. Ireland henceforth functioned more as a regional economy, whose population expands or contracts as economic conditions dictate, than as a national economy whose population size is determined largely by demographic factors. As Krugman (1997) points out, national productivity determines the well-being of a national economy, regardless of the sectors in which the economy specializes. The size of a regional economy on the other hand is crucially determined by its export base (or more generally by its international competitiveness); if exports collapse, for example, regional income falls, expenditure on non-tradeables declines, and workers emigrate. The second crucial event of the nineteenth century that is important to our story is the de-industrialisation of the country that followed in the wake of the industrial revolution. Irish industry heretofore had been quite successful, relying on low wages for competitive advantage. Agglomeration economies grew in importance as the industrial revolution proceeded , however, which favoured British industry. As transport costs declined, sectors which had been largely non-tradeable and therefore protected became internationally tradeable, Irish industry went into decline, and the economy became an agricultural hinterland of Great Britain. The problem for an agriculturally-based regional economy is that capital accumulation tends to displace labour and so extensive growth in overall GDP or in population is difficult to achieve. Positive externali-ties also appear to be less prevalent in agriculture than in some other sectors, which reduces the likelihood of real convergence in intensive terms (that is, in terms of income per head) in such a region.