|
Article Excerpt
The rapid growth and high levels of foreign investment in the Irish economy during the 1990s are often cited as a model for Canadian development policy. It is claimed that we should adopt low corporate profit taxes in "enterprise" zones to stimulate the growth of lagging Canadian regions. In this article compares the growth experience of Ireland and Wales. Wales attracts little attention, yet it too experienced high levels of foreign investment. This article shows that foreign investment is not a sufficient condition, and perhaps not even a necessary condition, for strong growth in disposable incomes. Thus, Ireland may be less informative than Wales for developing regional policies.
La croissance rapide et les niveaux eleves d'investissements etrangers dans l'economie irlandaise durant les annees 1990 sont souvent cites comme un mode le pour la politique canadienne de developpement. Cet article compare l'experience de croissance de l'Irlande et du Pays de Galles.
L'economie agricole de l'Irlande a ete transformee dans la seconde moitie du vingtie me sie cle, une periode d'impots diminue (et meme zero) sur les profits des entreprises etrange res. Cependant, les determinants de croissance d'Irlande incluent des subventions massives de l'Union europeenne, les devaluations de taux de change, une provision elastique de travailleurs qualifies, et l'acce s au marche europeen grand et croissant. De plus, la croissance exceptionnelle en Irlande a eu lieu apre s l'augmentation des impots. Un effet significatif de l'important engagement etranger en Irlande est le grand ecart entre le PIB et le PNB qui continue d'elargir, indiquant l'etendue des avantages de croissance qui accru en dehors d'Irlande.
D'autre part, le Pays de Galles s'est transforme de sa base du [19.sup.ieme] sie cle constituant de l'extraction minie re, le fer et l'acier avec ses salaires relativement eleves. La croissance economique etait irregulie re, malgre un investissement international generalement plus fort que dans l'Irlande. L'investissement international est venu a Pays de Galles sans impots et main d'oeuvre concessionnaires accorde en Irlande - et malgre l'effort du gouvernement de Thatcher attirant les entreprises etrange res au sud-est d'Angleterre. Le Pays de Galles a profite aussi de la decentralisation de l'emploi gouvernemental.
Cet article demontre que l'investissement etranger n'est pas une condition suffisante et, peut-etre meme pas une condition necessaire, pour une forte croissance des revenus nets.
Introduction
A regular theme in the business and popular media has been Ireland, the "Celtic Tiger", is the model of development for the lagging regions of Canada, perhaps for the entire country. Ireland's rapid GDP growth through much of the 1990s is the achievement we should aspire to. Its use of low, even zero, corporate profit taxes to attract foreign investment is claimed to be the policy responsible for Ireland's success.
Academics with more complex explanations of Ireland's growth nonetheless accept the proposition that foreign investment is an important part of a growth strategy (Fortin 2001; Romsa 2003). Cross (1999: 384) cites a high ratio of FDI/GDP to conclude that multi-national enterprises (MNEs) "... have had and will continue to have a critical role in determining the pace and structure of economic development across Europe..." In Canada, Guillemette and Mintz (2004: 1) advocate that Canada "...reform corporate taxes to enhance the country's attractiveness as an investment location". Harris (2005: 5, 6) claims Canada's poor R&D performance could be offset by technological diffusion through trade and foreign direct investment, even though he recognises that FDI is one of the limitations on domestic R&D activities.
This paper describes the Irish development process. The criteria for measuring successful development are assessed and the economic costs of their foreign investment strategy are considered. Wales makes an interesting counter to Ireland as they share a proximity to the European market and strong traditional economic ties to England. As a region with sunset industries in mining, iron and steel, and fishing, Wales contrasts sharply with Ireland but has similarities with one of the poorest regions of Atlantic Canada, Cape Breton. The economic development of Wales is reviewed and compared to the Irish experience. This permits an evaluation of the relative performance of the two economies and the implications for Canada's regional policies.
Ireland, Then and Now
The latter half of the 20th century saw a major transition for the Irish economy, from an inward-looking, agriculture-base to a high growth, high-tech, export-oriented economy. Ireland's growth experience in the 1960s and early 1970s was mixed- faster than the UK's growth for most years of the 1960s and the 1970s, but generally slower than the Netherlands in the 1960s (Hallet 1981: 24). After joining the European Community in 1973, Ireland out-performed the Netherlands in most years of the 1970s. It is notable, however, that France's growth of GDP per capita exceeded Ireland's throughout most of the 1960s and 1970s (Ibid). In the 1980s, the GDP per capita in Ireland averaged 3.8 % growth, boosted by growth rates of 7.0 and 7.7 % in 1988 and 1989, respectively (World Bank).
When it joined the European Community, Ireland's GDP per capita was 60.8 % cent of the EU average (Romsa 2003: 157). Its growth accelerated in the late 1980s and its "miracle" occurred in the latter half of the 1990s. It achieved the highest growth rate in the EU--but also the second highest volatility in growth rates (Demyanyk and Volosovych 2005:11). By 2000, its GDP/capita was ahead of the EU average and it graduated from net recipient of EU funding to a net contributor.
Analysing the "Miracle"
The Irish economic transition began with policy changes in the late 1940s. Protectionism for agriculture and for inefficient industries gave way to an outward-looking approach in which foreign investment was an important component. The initial symbol for this change was the decision in 1947 to have a duty-free zone around Shannon Airport. In 1956, export profits were granted 100 % remission of taxes, and...
|
