In their recent articles, Pierre Fortin and Helen O'Neill characterize the Irish economic transformation in the following way: "Forty years ago Ireland could be described as relatively poor, stagnant and strongly protected economy based on agriculture. The country was faced with massive immigration outflows and was dependent on Great Britain in terms of exports and imports as well ... Today Irish income per capita is above the European average, the share of agriculture in GDP fell below 5 percent, the demographic trends are favorable, while the performance of Irish economy is among the top in the world." Irish dynamically boosted economic transition to one of the most open and best-performed economies in the world was characterized by several strategically important factors. Among them, three prevail in the following order, (a) an accelerated role of foreign investment and ownership in the economic transition, (b) the liberalization of international trade and (c) an incredible degree of openness in foreign trade while the restructuring of the economy played an increasingly important role on a lark as well. In this respect, a dominant promotion of private ownership took contributed very much to the success of Ireland's significant economic transformation. The government sold its shares of monopoly enterprises to private competitors quickly and transparently. The remaining shares of Irish public enterprises are being successfully put into the context of privatization. The sum of serious economic reforms imposed by Irish policy decision-makers has triggered the productivity of the real sector and tripled the expectations of economic growth far above the average of the European Union. All the way through the 90's Irish economy grew robustly by nearly 80 percent per year. Today, Ireland embodies the spot of opportunities for investors from all around the world. The corporate tax rate was slashed from previous 16 percent to current 12,5 percent. With this spectacular rate, Ireland's corporate tax rate is among the lowest in the world. Coupled with favorable geostrategic position, Irish business environment opened-up its place to numerous multinational companies from overseas. Foreign investors enjoy the same level of legal protection as domestic companies while there are practically no persistent restrictions for incoming foreign investors. After the corporate tax rate was lowered and some remaining restrictions slashed, Ireland has become the top destinations for U.S. multinationals. One third of the entire U.S. foreign investment worldwide is operating in Ireland while the U.S. is Ireland's top export destinations. Roughly 30 percent of all Irish goods and services are exported to the U.S. In 2004, the real GDP grew by 4,9 percent, the highest rate among the members of the European Monetary Union. On the other hand, sound financial institutions indeed stood there as one of the foremost components in the advancement of small country on the edge of Europe (See: Index of Economic Freedom 2006) where the legal establishment of private property rights has been strong and intellectual property very well protected against abuses (CATO, 2003) and where the barriers to foreign investment participation have been minimal (IMD, 2006). Series of other drastically relevant studies fatherly confirm the soundness of Irish business-friendly environment. Thus, if Irish, as well as foreign investors want to setup an enterprise then he's obliged to go through only four procedures, most of them can be done online and Irish new investors also don't need a minimal deposit in registering for his number of the bank account (World Bank, 2006). Another successful page of Irish economic transition presents the transparency of institutional framework. Its role has been primarily focused on the following chapters of major problems, (1) a huge public debt, (2) a deep deficit in the balance of payments, and (3) constantly high level of inflation. From 1980 to 1985, the unemployment instantly peaked at 13 percent of the entire active labor force. Throughout the restricted approach to public finance and fiscal correction, the annual budget was no longer caved in deficit. It moved to the surplus for the very first time. The ratio between public debt and Gross National Product downsized from 108, 5 percent in 1993 to 55,1 percent in 1999. The entire role of the institutions succeeded primarily because of sound establishment in managing institutions as whole. Committed to rules instead of discretion, Irish central bank stabilized the monetary framework of the country until euro was adopted as a single currency. The economic policy of choice equipped policy-makers with lessons from the latest results of economic policy. Largely unfavorable measures were banished and persistently decreasing trends impaired. Those developmentally-friendly measures included an anticipated further liberalization of labor market, reduced regulation and an accelerated involvement in European integration processes (Baker, 1999). In 1973, Irish GDP equaled exactly 60 percent of the GDP of the average of the European Union. It grew by 6 percent until 1980 while at rapidly accelerated economic growth in 1992 Irish GDP raised up to 88 percent and fatherly to 104 percent in 1994 and 107 percent of the European average in 1997. The 'so-called' social partnership despite having been moderately institutionally protected acted decently so they didn't disturb further economic growth. Trade unions didn't cluster the developmental progress with collective bargaining as they do in Slovenia. Even more, throughout the period of economic transition, Irish trade unions promoted a greater participation of foreign investors. On the other side, Irish trade unions strongly supported price competition and the liberalization of labor market also. The supporters of statism take Ireland as an example of how subsidies from structural funds work and how European Union successfully financed Irish development. Their misinterpreted arguments, however, are very far from being relevant. Previously mentioned promotion of direct inflows of foreign investment was side-by-side characterized by the remission of capital gains and dividends to foreign and domestic investors, fatherly supported by tax incentives aiming to boost productive behavior at continually minimized administrative barriers. There was also a highly sophisticated approach of so-called developmental agencies. Their primary role was not concentrated on acting in terms of intervention but it was focused strictly on reforming rigid an persistent macrostructures. In a detailed panel paper, Patrick Honohan and Brendan Walsh estimate that the total amount of FDI flows measure relative to GDP already exceeded the entire amount of subsidies financed from the European structural funds.
From Adam Smith onward, demographic trends play a highly relevant role in the process of growth, productivity and labor market structures as well. According to the data available, Irish demographic picture had been continually catastrophic. From 1841 to 1961 the entire population decreased from 6,5 million to 2 million. The main reason for this was the desire of many Irishmen to pursue better standard of living so by and large they immigrated mostly to the U.S., Australia and Canada. After the series of measure had been undertaken, in 35 years the population grew robustly by 35 percent while the participation rate on the labor market increased by 42 percent.
Irish economic growth was, aside from the demographic turnover, supplied with one of the friendliest environments for foreign investors as well as with export-oriented economy. Ireland also enjoys the biggest share of high-tech products in its export structure (OECD, 2001). The biggest threat to Irish continually stable economic growth is the potential recession in the U.S. market (OECD 2004, Baker, 2003). The majority of international investors in Ireland are U.S. companies while the U.S. is Ireland's top export destination.
Another important factor underlying Irish economic growth was the convergence of total factor productivity which externally helped Irish companies to boost exports and helped to increase Irish international competitiveness after taking a larger role in the international trade. Sufficiently flexible labor market helped increase female labor market participation rate. It equaled 65 percent in 1993. The creation of new jobs absorbed large inflows of foreign labor force. Friendly legislation has thankfully not imposed barriers and restrictions to employing foreign workers, mostly from Eastern Europe. Flexible and efficiently non-patched labor market coupled with laws which minimized the administrative obstacles for business start-ups, has given a huge basis for future economic growth (O'Gorman, 2005).
Ireland could be graded with A on the level of macroeconomic policy also. Tax burden measured in GDP percentage currently stands at 30, 2 percent of the GDP which is one of the lowest among OECD countries. GDP (PPP) ranks among the highest eight ones in the world according to CIA World Factbook. Irish level of economic freedom has been triggered up to the third-highest level of economic freedom in the world (Heritage, 2006).
Swedish think-thank Timbro estimated that if American economy were frozen in 2010, only Ireland would catch it up in five years. For example, if Sweden wanted to catch up the U.S. GDP and if American economy were frozen, then it would reach the U.S. level of GDP no sooner than in 2027.
Irish challenge was from the beginning handicapped and continually hurdled with series of civil wars and damaging devastations. Its further developmental policies were all based on non-governmental intervention. Further steps were taken through series of measures including business-friendly tax legislation, openness in international trade, increased role of foreign investment and "baby boom" generation ((Fitz Gerald, Kearney, Morgenroth, Smyth 1999). Currently accelerated pace of total factor productivity growth in the real sector is putting a small bite-roaring Celtic tiger closer in the battlefield with the growth and structure of total factor productivity in the U.S.
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