Ireland is a small, modern, European trade-dependent economy with an estimated GDP of US$ 186.7 billion in PPP terms (US$208 billion when the official exchange rate is used) in 2012. With a population of 4,775,982 (2013), this translates into a GDP per capita of US$ 40,700. Prior to the onset of the global financial meltdown in 2008 which has severely dented Ireland’s economic prowess – at least in the short term – Ireland, then famously labelled “Celtic Tiger” enjoyed almost four decades of extraordinary success where it was transformed from being a poor country on Europe’s periphery into one its richest countries. Between 1970 and 2000, the Irish economy grew at an average annual rate ...view middle of the document...
When it was realised that the stagnant so-called “infant industries” were unable to provide enough jobs to counteract the falling number of agricultural jobs, Irish policy makers made fundamental and far reaching changes in the industrial development policy in the late 1950s. In particular, the Control of Manufactures Act, which prohibited foreign ownership, was abolished. For about 4 decades that followed, Ireland pursued an industrial strategy characterised by (i) promoting export-led growth in Irish manufacturing through various financial supports (cash grants towards the cost of plant and machinery which would be used to produce goods for export markets) and fiscal incentives (mainly tax holidays on profits), and (ii) encouraging foreign companies to establish manufacturing plants in Ireland, producing specifically for export markets in the EU.
Ireland also attempted to protect indigenous firms from direct competition with foreign firms in the home market. This was done through promoting greenfield FDI and through denying grants to foreign firms that were clearly going to add competition on the domestic market.
The protectionist policies of the government led to a dismal economic performance in which Ireland’s economy grew at only 2% while the European average was 5%. In addition, exports made up only 32% of Ireland’s GDP with 75% going to the United Kingdom.
Ireland’s leaders determined a liberalized trade policy was needed as well as a strategy of export-led diversification and growth. Starting in 1956, restrictions on foreign business ownership were phased out and export firms were granted tax-free status. In both 1964 and 1965, unilateral tariffs were cut. Then in 1966, Ireland negotiated a Free Trade Area with the United Kingdom which eventually led to them to joining the wider European Union in 1973. As a result, Ireland gained access to a huge continental European market and made the country attractive to U.S., Canadian and Japanese firms wishing to enter the European market using an English-speaking work base. By the end of the 1960s, 350 foreign companies (primarily American) were established and rapidly became leaders in the export sector.
The result of reducing protectionist trade policies was to allow Ireland’s economic growth rate to double to an average rate of 4.2%. This growth helped Ireland keep pace with the rest of Europe, which was growing at about 4%. Unfortunately it failed to improve upon the low standard of living of the people of Ireland which was less than two-thirds of the rest of Europe.
Furthermore, a number of policy initiatives were undertaken in the mid 1980s to address the specific needs of indigenous industries.