The Irish Economy


From the 1920s when Ireland achieved its independence from the UK it

had high trade barriers such as  tariffs, particularly during the Economic War with Britain in the 1930s.  During the 1950s, 400,000 people emigrated from Ireland. It became increasingly clear that high import tariffs and the policy of import substitution, a form of economic nationalism, was a failure. While other European countries enjoyed fast growth after WW2, Ireland suffered economic stagnation. Major policy change came about as outlined in a Government paper titled Economic Development, published in 1958 that advocated free trade, foreign investment, and growth rather than fiscal restraint as the prime objective of economic management. This set the economy on a faster growth path and led to the signing of a free trade agreement with the UK in 1961. The economy enjoyed solid growth underpinned by FDI investment and a strong export performance in the period 1960 to 1983. A deep recession from 1983 to 1986 caused high employment and emigration. However the free trade open economic policies got the country back on its feet in 1987 ushering in the economic miracle or so called “Celtic Tiger '' era of very rapid economic growth. Ireland was hit hard during the great recession and suffered a major banking crisis.  However the high growth pattern returned in 2013. In 2021, the economy was 84% bigger than in 2013.

Growth and factors driving it. 

In 1986, at the bottom of the severe 1980s recession, the GDP of Ireland was US$28.72. In 2021, thirty six years later, Irish GDP was fifteen times higher at US$440*.  This is equivalent to a compound growth rate of 8% over this thirty six year period. This was a remarkable achievement by any standards. Ireland’s exceptional economic growth gave rise to the term “The Celtic Tiger” mirroring the high growth Asian Tiger economies of the 1980’s and 1990’s.

Economists have suggested a number of reasons for this out-performance. Most agree that Ireland’s success in attracting Foreign Direct Investment is the main driver. They point to low corporation tax (12.5%) as a major factor in attracting multinationals and especially US owned companies to invest heavily in the country.

The introduction of free second level education in 1966 is also cited by economists as a significant contributing factor in that it increased the potential growth rate of the economy by a number of percentage points. University capacity was greatly increased from this time and large investments were made in new regional technical colleges at a level below the universities. Economists hold that Ireland has a highly educated workforce as a result of this large investment in people, making the country a magnet for high end FDI today.

Back in 1998, the OECD reported that During 1998, Ireland was the  largest exporter of software in the world with software exports of  $3.29bn. In 2021, the CSO classified exports of €134Bn as  “computer services, which covers hardware and software-related services as well as data-processing services.”

Many of the biggest global names in tech – Google, Microsoft, Intel, Apple,  Facebook, Hewlett Packard and eBay have big operations in Ireland. These companies are very large exporters

According to the Central Statistics Office (CSO), Ireland exported a record €406 billion worth of goods and services in 2020. The main drivers were information and communication technology, pharmaceuticals, medical equipment/medical devices, financial/legal services and food/drink.  Ireland is unique as exports of services in 2020 were worth €244Bn (60% of total exports) with goods exports of €162Bn.

On goods exports, medical and pharmaceutical products accounted for €62 billion or 38 per cent of the total while exports of organic chemicals, which incorporates a lot of the raw material that go into making pharmaceutical products, accounted for a further €31 billion.

Others point to the ramping up of state investment in R & D, applied R & D, and innovation from 1990. Today, this investment drives innovation but perhaps more importantly, it provides a large pool of trained researchers to Irish industry including the foreign owned sector.

The GDP  figure somewhat exaggerates the true economic performance due to the inflated profits arising from transfer pricing  measures taken by multinationals with subsidiaries in Ireland. Ireland's population has also grown by The CSO now publishes an alternative measure called GNI* that removes this distortion. Using this measure, the size of the Irish economy in 2021 is estimated at US$275B. This is equivalent to a compound growth rate of 6.5% over a thirty six year period which is still a remarkable performance.

Update for the Year 2021

According to the CSO, the Irish economy as measured by GDP grew by 13. 5% in 2021. The latest CSO data show that the foreign owned multinational sector grew by 22%, boosted by exports with pharma up 24% and ICT up 14%.  Though less spectacular, the domestic economy also enjoyed strong growth of 6.5%, based on the CSO index of modified domestic demand, which measures activity in the domestic market.  Some parts of the domestic economy that were hit hard by pandemic lockdowns recovered strongly with transport, hotels and restaurants growing by 6.2%.

Total industrial investment jumped by a massive 76.5% in the last quarter of 2021, which the CSO attributes to the purchase of computer hardware for Data Centers and by people working from home. The strong performance of the multinational sector contributed to Ireland becoming the fastest growing economy in Europe in 2021.