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Republic of Ireland -"the Celtic Tiger economy"- Progress and Challenges

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Journal of Interdisciplinary Cycle Research ISSN NO: 0022-1945

Republic of Ireland – "the Celtic Tiger economy"-

Progress and Challenges

Yash Gundecha, Ashwary Jain, Chinmay Gupta and Muskan Bhutani

Management Students,

UNIVERSAL BUSINES SCHOOL

Prof.M.Guruprasad

UNIVERSAL BUSINESS SCHOOL

Abstract
"Celtic Tiger" is a term referring to the economy of the Republic of Ireland from the mid-1990s to the
late-2000s, a period of rapid real economic growth fuelled by foreign direct investment. The boom
was dampened by a subsequent property bubble which resulted in a severe economic downturn.

The Celtic Tiger economic boom, which happened in Ireland from roughly 1987 to 2009, has
commonly been viewed as one of the most wonderful monetary turnarounds in any nation in the
cutting-edge time. Our motivation right now is to recognize the essential drivers and impacts of
such quick and emotional financial development and improvement. The paper presents a new
understanding of the role of the state in the Irish miracle that explains not only its success and
failures but its internal dissonances, such as the continuous discrimination of the local, Irish-
owned, industry in favour of foreign-owned MNCs. The paper illustrates how a particular
industrial economic ideology has been formed and crystallized in Ireland. Focusing on the IT
industry, it traces the influence and evolution of this ideology at five critical decision points over
a fifty-year period. It also briefly discusses the recent challenges in the economy.

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Introduction
Ireland – "the Celtic Tiger economy" – has been the European example of overcoming
adversity of the most recent decade. It is substantially less broadly valued anyway how poor
the nation's monetary presentation had been over earlier decades. Today is ordinary to
anticipate less fortunate economies, if the fundamental prerequisites for development have
been met, to display genuine union, I. e. to develop more quickly than their more
extravagant neighbours. All things considered, the general shortage of capital in more
unfortunate economies should mean a high genuine come back to capital, which is required
to invigorate high venture rates and solid capital inflows. Ireland, be that as it may, didn't go
amiss much from around 60 percent of the degree of national pay per head in the UK (the
nation's single most significant exchanging accomplice) somewhere in the range of 1913 and
1985.1 Trade advancement in the late 1950s, and EU increase in 1973, by the by changed
the monetary condition drastically and planted the seeds of the quick genuine assembly
experienced in the course of the most recent decade or thereabouts. Ireland has been one
of the quickest developing economies in the European Union or the OECD during the 1990s.
Fast development of fares, yield and work have driven market experts to depict Ireland as
the 'Celtic Tiger'
Notwithstanding, in what is likely the biggest assortment of work in worldwide political
economy, the 'general public focused' approach contends that exchange strategy is at last
receptive to financial intrigue bunches communicating their requests through the political
framework. We investigate the pertinence of this way to deal with Ireland's choice to desert
protectionism and find that it offers a powerful option in contrast to ordinary clarifications.
Farming’s needs were exceptionally persuasive in the approach choices that were taken
during the 1950s. Without the risk of prohibition from the rising procedure of European
reconciliation and the going with loss of customary markets for farming fares, protectionism
would have continued for quite a while. Be that as it may, we additionally recommend that
the acknowledgment by industry of facilitated commerce, but qualified by demands for
types of transitional help, mirrors the changing harmony among exporter and protectionist
interests in that part—as far as anyone knows the conceivably unfavourably influenced area,
as the recipient of security. This general modern inactivity encouraged, at any rate, the
relinquishment of assurance. The following segment puts our exploration with regards to
the writing on Irish exchange arrangement, just as a portion of the more extensive
chronicled records of the period. At that point we proceed onward to depict the general
public focused methodology and its pertinence to the Irish case. Our decision thinks about
the ramifications of our contention for the investigation of Ireland's outside financial
strategy.
The paper discusses changes in Ireland's Economy over a period of time. Be that as it may,
its main role is to describe the advancement of a point of view—on the Irish economy and
the arrangement approaches accessible to a little European part state—shared by the
major financial, political and social entertainers.

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Key Objectives

• To understand the key factors responsible for the Progress of Irish Economy

• To evaluate the impact of various policy initiatives

• To understand the Challenges faced by the Economy.

Research Methodology:

The approach was to analyse the performance of the Irish economy over time using secondary data of
some of the key economic performance indicators and through the review of literature. This study
helps us understand the various policy initiatives by the Irish government,Challenges faced by the
economy and it impact over time.

Literature Review
Ireland's economic history does not really have many success stories to tell. It is mainly
dominated by stagnation and decline and a high dependence on Great Britain. During the
18th and 19th century Ireland's economic performance was rather weak. During the
industrial revolution, which was a general boom for most parts of Great Britain, was only
concentrated in a few Irish sectors, such as brewing, linen, and shipbuilding, and mainly
only in Belfast and Dublin. In the middle of the 20th century, Ireland's economic situation
did not improve. Import quotas and high tax barriers were responsible for a poor regional
competitive position of the country. The Republic of Ireland changed into an unattractive,
rural, and backward funding area with critical problems together with excessive
unemployment and low standards of living (Patrick T. Geary, April 1992).
Then, Ireland's economic performance changed rapidly. The formerly isolated country
started to become equal among the other nations in Europe and the world. Due to overseas
investment, a huge and rapid monetary boom in key sectors together with facts technology
helped to convert the previous weak Irish economic system in considered one of Europe's
most successful economies.
Thus, the Republic of Ireland not only became more advanced than the United Kingdom,
it additionally replaced its former conventional and depressing picture by using a
modern-day and cosmopolitan one. This financial miracle in Ireland all through the
Nineteen Nineties is called the Celtic Tiger, a name which points at the economic power
of the Asian nations Hong Kong, Singapore, Taiwan and South Korea (John Hogan, Dublin
Institute of Technology, 2010).

The recent literature on the performance of the Irish economy in the 1980s is the subject of
this paper. A substantial part of it addresses the period of recovery from 1987 to 1990, but it
is inappropriate to view this period in isolation from the grim, preceding years. A review
usually implies some categorisation of the literature; this one chooses to distinguish foreign
from domestic contributions.

The Irish economy’s current performance is most impressive. High and sustained economic
growth, low inflation, a current account balance of payments surplus, falling unemployment,
net immigration and a growing budget surplus are the stuff of macroeconomists’ dreams. All

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the key macroeconomic indicators are positive. Ireland, traditionally a laggard behind the
U.K. economy, has now a per capita GDP which exceeds that of the U.K. The metaphor, the
Celtic Tiger, first coined by Morgan Stanley in August 1994, has become the fashionable
neologism for the Irish economy. Many articles have been written about the Celtic Tiger as
commentators highlight the transformation of the Irish economy.
(Business Financial Post, 2018)

Globalization enabled Ireland to move from the periphery towards the centre of
the new global economy. Now Ireland is the second largest exporter of packaged
computer software in the world after the United States, twelve of Fortune’s top twenty
electronic companies and all of its top ten pharmaceutical companies have plants in
Ireland. From having virtually no major export industries (Guinness and Irish whiskey
representing two exceptions) Ireland has become a significant platform for U.S. high-
tech companies competing in the European market.

In this new global economy, or more specifically, this Euro-US economy, is it sensible to
talk of core and periphery, to discuss convergence and catch up? These were terms that were
appropriate in the industrialised world where transport and communication costs conferred
benefits to countries at the core and where investment from core economies could gradually
help peripheral countries to converge towards them. In the post-industrial high-tech world
core and periphery have become anachronistic.
This new economic geography flips traditional theory on its head. Convergence,
at least in Irish terms, needs to be replaced by leapfrog because Ireland has successfully
moved from the equivalent of a donkey-and-cart economy to a high-tech economy by
leapfrogging over the intermediate hump of industrialization. Indeed, it will be argued
that the absence of a large industrial base helped Ireland in that it enabled the
government to provide significant tax advantages which would have been difficult, if
not impossible, to make if a large industrial base already existed. Furthermore, the lack
of industrialization meant the absence of obsolete capital and rigid labour practices.
Ireland was not to follow the path of industrialization. Instead an alternative path
emerged, a high-tech path configurated by a different economic terrain.
(Celtic Countries, 2017).
The Irish case raises issues as to whether other pre-industrial countries can be
transformed to post- industrial economies and whether it can be done as speedily as the
Irish case.

According to The Economist’s article of 1987, Ireland was a poor struggling

economy. Data shows that economic growth had averaged 0.2% over the previous
five years during which time there were three years of negative economic growth.
Unemployment amounted to 18% of the labour force, and the national debt amounted to
125% of GNP. Some commentators were comparing Ireland to a heavily indebted banana
republic.

Many identify 1987 as the take- off year for the economy, when a policy of fiscal
retrenchment was introduced, to correct the economy from the excesses of the late
1970s and early 1980s. Even here, as will be explained later, the forces for change were
global rather than specifically domestic. But while 1987 ushered in some hope with
good growth in GNP registered for 1987, 1989 and 1990, the familiar pessimistic
refrains were heard between 1991/93. This may be seen by examining the growth in

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GNP and the growth in employment since 1987:

GNP Employment
1987 4.4 0.8
1988 2.5 1.9
1989 5.4 0
1990 7.3 4.4
1991 2.5 -0.3
1992 1.9 0.8
1993 2.6 1.5
1994 6.3 3.2
1995 8.0 5.0
1996 7.2 3.7
1997 9.0 3.8
1998 8.1 8.3
1999 6.5 5.4

The period 1991-93 produced little that was spectacular in terms of economic growth
with the total number of people at work actually falling in 1991.High interest rates
associated with the exchange rate crises that hit the European Union countries in
1992/3 severely dampened demand. The old questions started to be asked once again.
Where was the country heading? Even though employment had grown by some 72,000
between 1988 and 1993 unemployment was 3,000 greater at 220,00.

From 1994 there has been a period of sustained growth in GNP and in employment. GNP
growth has averaged 7.5% in the six years between 1994-1999 (GDP growth has averaged
8.4%), employment has grown by over 390,000 and unemployment is expected to average
just 6% in 1999. The public sector deficit has moved into substantial surplus and the national
debt/GNP ratio now below 60% is half what it had been in 1987. Domestic demand is strong
and there is an effervescence effect running through all forms of expenditure ranging from
new car sales to house purchases. Table 1 shows the extent of the contrast between the
growth of the second half of the 1990s with the experience of growth in the 1980s.
In order to explain the new economic configuration and how a predominantly pre-
industrial economy leap-frogged to a post-industrial high-tech economy so abruptly it
is first necessary to outline some of Ireland’s recent economic history. Using a broad
brush, the following periods may be identified:

• 1922-32 - The first decade of independence marked by a continuation of

existing policies. In 1927 an independent Irish currency was established but
kept at a one- to-one parity with sterling.
• 1932-38 - The era of protectionism. There was an economic war with the
U.K. and an attempt to build infant industries behind high tariff walls. The
Control of Manufactures Acts were introduced prohibiting the ownership of
Irish industry by foreigners.
• 1939-45 - World War II during which Ireland remained neutral.
• 1946-57 - The period of economic stagnation marked by heavy emigration -

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net emigration averaging over 40,000 during the 1950s.

• 1957 - The removal of the Control of Manufactures Act.
• 1973 - Ireland joined the European Economic Community.
• 1977-81 - Expansionary macroeconomic policy used in an attempt to
provide full employment. This policy, which resulted in the Public Sector
Borrowing Requirement (PSBR) constituting over 20% of GNP, failed
creating balance of payments problems and pushed the public sector debt up
to 120% of GNP. Paradoxically, during this period of fiscal excess, Ireland
joined the European Monetary System in 1978.
• 1979 - As a result of joining the ERM of the EMS the Irish pound’s one-to-
one parity with sterling was broken in March 1979.

• 1981-86 - Attempts at fiscal retrenchment largely aborted by conflicts

amongst the partners of the Coalition governments of the period.
• 1987 - Fiscal retrenchment introduced. The International Financial Services
Centre launched.
• 1988 - The first tax amnesty. This helped to reduce significantly the budget
deficit and the PSBR.
• 1992 - Single European Market. Ireland signed up for the first phase of
EMU at Maastricht. Abolition of exchange control regulations.
• 1992/3 - Exchange rate crises. Devaluation of the Irish pound (January
1993) and move to wider exchange rate bands (15%+/-)
• 1999 - Ireland in the EMU.

The above is not a comprehensive listing of the events which helped to shape the Irish
economy in the twentieth century but it does show a number of important issues: (1)
the fluctuating openness of the economy; (2) the recourse to independent policies to
solve economic problems; (3) the growing Europeanisation of the Irish economy.

(Murphy, 2019)

Analysis of Irish Economic model

Ireland’s model of economic development was based on the following pillars
1. Tax heaven Policy
2. Labour Laws
3. European Integration and Globalisation
The development of Ireland was majorly influenced bythese pillars. The journey from the
rags to riches of Ireland was followed by these steps that the government of independent
Ireland took.

In 1973 Ireland was a small country on the periphery of Western Europe, the last point
between the old world of Europe and the new world of the United States of America. Before
joining the EU in 1973, Ireland’s largely agriculturally based economy was choked by its
dependence on the UK market. In January 1988 the Republic of Ireland was titled “Poorest

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of the Rich” in a survey published by The Economist.

Most of the expansion had originated from new outside claimed ventures that sent out the
greater part of their yield.
Previously considered as a laggard behind the U.K. economy, Ireland now attained a higher
GDP capita than the U.K. In August 1994, Morgan Stanley coined the term “The Celtic
Tiger” for the tremendous turnaround of the Irish Economy. Globalisation was the biggest
driving force behind Ireland’s shift towards economic growth. The country which had no
major export industry, now has become a significant platform for U.S. high tech companies
competing in the European market.

Put in place in 1987, there was a unique approach to economic planning that involves all
the social partners—business, trade unions, farmers and government

Tax Haven model

A tax haven is commonly a offshore nation that offers outside people and organizations
practically zero tax risk in a politically and monetarily static condition. Tax havens
additionally offer constrained or no money related data with outside tax specialists. Tax
havens don't ordinarily require residency or business nearness for people and organizations
to profit by their tax approaches.
The Irish corporate tax haven strategy took its first steps in 1956 with the Export Profits Tax
Relief (EPTR) which entirely exempted manufactured export goods from corporate income
and profits tax. The tax exemptions were extended in the late 1950s – not least with the
Free Zone around Shannon air terminal – the world's first Free Trade zone – and the
framework truly took off during the 1970s when the Industrial Development Authority (IDA)
began to showcase Ireland's expense framework universally under trademarks, for example,
'no tax'.

Its offshore monetary focus depends on two other key components. The primary, dating
from 1956, is a system of low corporate duty rates, provisos and laxity intended to urge
transnational organizations to migrate – regularly just on paper – to Ireland. The second
huge advancement has been the setting up of a Dublin-based International Financial
Services Centre (IFSC).

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Labour Laws
National compensation understandings were reinstituted in 1987 with the exchange of the
Program for National Recovery (PNR), followed in 1990 by the Program for Economic and
Social Progress (PESP), which went on until the part of the bargain, the Program for
Competitiveness and Work, from 1994 to the part of the bargain. These moderating
affected compensation increments, and furthermore advanced more prominent consistency
in compensation courses of action over the economy, especially in the private segment.
The rapid rise in participation in education has had the effect of greatly reducing
participation rates for men and women under 25. However, the rising educational attainment
of successive cohorts of young men and women entering the labour force will tend to boost
participation in older age groups. Just as bringing an interest for talented work, the coming of
global firms additionally brought new administration abilities and access to a scope of
advances which were not accessible locally. As of late there has been some indication of an
exchange of these abilities to neighbourhood firms. Also, the development in the minimum
number of firms working in the high innovation divisions has seen a development in the
neighbourhood work market's inventory of important abilities.

This development is a result of a deliberate strategy pursued by policy makers. Since the
late 1950s Irish industrial policy has offered significant tax incentives and financial packages
to foreign companies to locate production here. This became particularly attractive to
foreign investment since Ireland’s accession to the EU in 1973. The policy was outward-
oriented with more generous tax advantages being offered to exporting firms in the 1970s.
Policy gradually became concentrated on selected sectors, notably the electronics (including
software), health care and pharmaceuticals sectors.
The result of this outward-oriented strategy was that there was a significant restructuring of

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the manufacturing sector, especially in the 1970s and 1980s. Production in manufacturing
shifted from dominance by a largely indigenous, low-technology group of “traditional”
industries, which had strong links to the domestic and UK market, to the current dominance
by a group of “high-technology” industries, concentrated in electronics and pharmaceuticals.
This group is largely foreign-owned and export-oriented.

European Integration
A vital feature of the changing Ireland is the opening of the economy and society as whole
to the European economy early. In 1922 Ireland was the first of the British colonies to
break away since the United States in 1776, and it had to write its own rules. European
Union transfers of approximately $3 billion per year have been a significant benefit to
improving Ireland’s infrastructure. According to experts, Ireland's membership in the EU
since 1973 helped the country gain access to Europe's large markets.

Competitiveness of Ireland economy

With an economic freedom score of 80.9, Ireland is 6th freest country in the 2020 world
index. An increase of 0.4 in the points for the year 2020. Ranked 2nd among the 45
European countries and well above the regional and world average.
With measures to further improve the judicial system and privatisation of banks it is well on
the path of a significant increase in economic freedom rating. The overall tax burden is
lower compared to other countries and rule of law prevails which further enhances the
competitiveness and efficiency of the economy.
It ranks 24th on the ease of doing business index which is set to improve considering the
past record and the economic performance.

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The economy is well diversified with major contributions from the industrial and services
sector to the economy.
The impact of COVID-19 is not as severs compared to other EU countries since the
contribution of tourism sector is less and the tourism sector is one the most severely hit
sectors around the world and especially in EU.

The unemployment rate is in control unlike other countries, with peak unemployment

at 5.4% in the month of March 2020.

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Recent Challenges of Irish Economy

The economy underwent a dramatic reversal from 2008, hit hard by the Global Financial
Crisis and ensuing European economic crisis, with GDP contracting by 14%and
unemployment levels rising to 14% by 2011. The economic and financial crisis lasted until
2014; the year 2015 with a growth rate of 6.7% marked the beginning of a new period of
strong economic growth.
By mid-2007, in the wake of the growing global financial crisis, the Celtic Tiger had all but
died. Some critics, who have been warning about impending collapse for some time, "The
case of Ireland is about an economically challenged government, influenced by the
interests of the housing lobby, was not sustainable.
COVID-19 is having a dramatic impact on Ireland. Business closures and lay-offs have taken
place right across the country. The retail, hospitality and construction sectors have been
particularly badly affected.

Some measures by Irish Government during Covid-19

• A temporary wage subsidy off 70% of take home pay up to a maximum weekly tax-free
amount of €410 per week to help affected companies keep paying their employees.
This is the equivalent of €500 per week before tax.
• Workers who have lost their jobs due to the crisis will receive an enhanced
emergency COVID-19 Pandemic Unemployment Payment of €350 per week (an
increase from €203)
• The COVID-19 illness payment will also be increased to €350 per week.
• The self-employed will be eligible for the COVID-19 Pandemic Unemployment
Payment of €350 directly from the Department of Employment Affairs and Social
Protection (rather than the Revenue scheme)
• Enhanced protections for people facing difficulties with their mortgages, rent or utility
bills.

The latest report from the Economic & Social Research Institute suggests Irish gross domestic
product will grow 3.4 per cent in FY 2020 and 4.9 per cent in FY 2021, despite tons of job losses
and government shutting most of the domestic economy to fight the pandemic.

Conclusion
There are significant lessons to be drawn from the Irish experience over every one of the
periods considered here. Examination of the 1950s cautions that protectionism, in little
economies at any rate, will at last come up short on steam. Ireland opened to unhindered
commerce during the 1960s. Remote fare arranged industry started to work out of Ireland,
yet indigenous industry remained excessively centred around the household advertise.

The economic boom in the Republic of Ireland, first witnessed in the mid 1990s and better
known as the Celtic Tiger, represented a marked shift in Ireland’s economic fortunes, and
led to an unprecedented growth in population, the vast majority of which took place in
urban areas. It took only two years for the country to go nearly bankrupt after the fifteen

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years of prosperity under the Celtic Tiger period. Irish people had tobear the brunt of the
reforms whereas they had thought that such times were over after being the euro area’s
fastest-growing country in terms of GNP per capita. In a nutshell, within four or five
decades, Ireland was transformed from a poor country into a highly successful economy.
Its development model was praised, studied and copied by many emerging economies like
the eight countries of Central Europe which joined the EU in 2004. The starting point of the
crisis is often identified as the bursting out of the real estate bubble. However, it was only
a trigger and the crisis was deeper and multi-faceted: a housing bubble by itself would
hardly cause the near-bankruptcy of several banks, a sharp economic contraction, rising
unemployment, a reduction of the standard of living of Irish people and a ballooning state
debt which led to austerity measures that aggravated the crisis for a while.
Some experts consider this as a failure of a progressive outward development model.
According to some experts, the entire Irish episode can be studied internationally in years
to come as an example of how not to do things.

The Irish experience teaches us the need for a sustainable economic development policy
form a long run point of view.
References
Understanding Ireland’s Economic Success July 1999 by John Fitz Gerald
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https://www.heritage.org/europe/report/how-ireland-became-the-celtic-tiger
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becoming-controversial-home/
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Frank BARRY*
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an-economic-miracle-that-rivals-china-india

Murphy, A. E. (2019, September). The ‘Celtic Tiger’ - An Analysis of Ireland’s Economic

Growth Performance. Programme in economic policy.

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