Working Paper: CEPR ID: DP1756
Authors: Angel de la Fuente; Xavier Vives
Abstract: This paper explores the sources of Ireland?s relative growth performance. Using panel data for a sample of OECD countries, we estimate a convergence equation and use it to conduct a growth accounting exercise which provides quantitative estimates of the immediate sources of Ireland?s growth differential vis-à-vis the OECD average and the other ?cohesion? countries of the EU. While we find that fiscal consolidation has contributed significantly to Ireland?s improved performance, we are not able to fully account for the ?Irish miracle? in terms of the standard growth theory variables. This finding supports the extended view that some peculiar features of the Irish economy (such as its success in attracting high-quality foreign direct investment) have played a crucial role in recent years. We conclude with some reflections on the need for structural reforms as a way to ensure the sustainability of Ireland?s rapid growth.
Keywords: Ireland; Growth; Competition; Policy
JEL Codes: E60; L40; O40; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal consolidation (E62) | Improved economic performance (O49) |
| Fiscal adjustments (E62) | Growth rate increase (O42) |
| Foreign direct investment (F21) | Dynamic export sector (F10) |
| Dynamic export sector (F10) | Improved economic performance (O49) |
| Tax incentives (H20) | Foreign direct investment (F21) |
| Skilled labor force (J24) | Foreign direct investment (F21) |
| EU subsidies (O52) | Foreign direct investment (F21) |