Hausarbeit - Causes For The Celtic Tiger
Hausarbeit - Causes For The Celtic Tiger
Hausarbeit - Causes For The Celtic Tiger
Philosophische Fakultät
Institut für Anglistik und Amerikanistik
Hans Müller
Stahnsdorfer Str. 152b
14482 Potsdam
[email protected]
Matrikelnummer 717348
8. Fachsemester Betriebswirtschaftslehre
List of Figures
Figure 1: External and Internal Factors causing the Celtic Tiger .............................................. 2
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Causes for the Celtic Tiger
Executive Summary
Before the 1990s, Ireland had living standards and gross domestic product (GDP) growth
rates more or less stagnating compared to its European neighbours. The era between about
1994 and 2001 called “The Celtic Tiger” changed the situation in Ireland significantly. GDP
growth rates averaged a staggering 10% between 1995 and 2000. This paper uncovers the
causes for this unprecedented growth. The principal factors are of external nature and in-
clude a booming US economy, which sent multinational high-tech and pharmaceutical com-
panies searching for a European base which they found in Ireland. Further external factors
were the advancing technology especially in the IT sector and EU-funds as well as the intro-
duction of the Euro all of which served Ireland’s economy well. Internal Irish factors include
a well educated, English speaking, computer literate and highly flexible workforce and low-
tax policies. The latter was used by multinational companies for shifting profits from other
countries into Ireland which causes the Irish GDP growth to appear exaggerated.
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Causes for the Celtic Tiger
growth because countries like Spain, Portugal and Greece received them as well but didn’t
grow as fast as Ireland (Clinch et al., 2002, p. 29).
Though conservative analysts see internal causes – causes over which Irish policy-makers
had control or influence – as most important, many authors as Paul Sweeney regard external
causes as more important. Figure 1 gives the reader an overview of the causes for the Celtic
Tiger, which this paper deals with.
2. External Factors
External causes are those over which the government and people had little or no influence.
They are amongst the most important economic factors. Examples are the economic situation
in countries on which Ireland’s economy is heavily dependent upon such as the USA, the UK
and countries within continental Europe. But also technological factors, the EU-membership
and the introduction of the Euro play a decisive role. Each external factor came into play ap-
proximately at the same time in Ireland, developing a benign conjuncture (Sweeney, 1998, p.
91).
Additionally a strong interaction between the level of foreign investment as external factor
and government policy as an internal factor attracted a lot of investment. This chapter exam-
ines the external causes for the Celtic Tiger which are widely recognised as most important.
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Causes for the Celtic Tiger
inflow of US corporate subsidiaries, which cannot be replicated in other countries and accord-
ing to Coulter & Coleman could not have been sustained in Ireland. (Coulter & Coleman,
2003, p. 34). The authors were proven wrong though because the Irish economy picked up
again into the phase of the so-called “Celtic Tiger 2”.
None of the internal factors could have turned around the Irish economy was it not for a
single factor: the sustained US boom in the 1990s particularly in computers and health related
industries. The boom sent US corporations looking for new markets (of which the EU was
most important) and tax shelters where they could shift unprecedented profits (Coulter &
Coleman, 2003, p. 37). The success story of the Celtic Tiger is therefore intimately linked to
the way the US economy itself has grown (Allen, 2000, p. 28). It emerged from a historic ex-
pansion in the United States that was centred on the information technology (IT) industry
(Coulter & Coleman, 2003, p. 34).
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Causes for the Celtic Tiger
Since its independence in 1922, Ireland was heavily dependent on its trading relations with
the UK. The EU-membership allowed Ireland to access Europe’s other large markets. Today,
Germany is one of the Republics most important trading partners. According to a EU Com-
mission study about its effects, the single market was even more important than the EU funds.
Ireland was a net beneficiary of the Single Market, particularly in its manufacturing sector
(Clinch et al., 2002, p. 30).
Both funds and Single Market helped Ireland significantly to lay the foundation for the sus-
tained economic growth (Sweeney, 1998, p. 87).
3. Internal Factors
The reform of the education system and the reform of labour relations as well as low taxes are
frequently identified as measures that created the conditions that made economic prosperity
possible and sustainable (Coulter & Coleman, 2003, p. 18). In this chapter the reader will find
that those measures were not the only ones Irish society produced in order to strengthen their
economy. Also, many of the domestic factors took a long time to bear fruit (Sweeney, 1998,
p. 92). This could be a lesson for other countries: Long-term investments into education and
an economic policy that is dedicated to investments without increasing public debt will even-
tually pay off.
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Causes for the Celtic Tiger
cessive Irish governments had persisted with a policy of educating workers in IT skills even
during the bleak years when the local economy had insufficient need for them (Coulter &
Coleman, 2003, p. 36). A highly educated workforce resulted (Coulter & Coleman, 2003, p.
11).
Another opinion is, that praise coming from corporations that were attracted to the Repub-
lic principally by the prospect of dealing with a highly educated workforce have rarely man-
aged to convince, because of a nowadays under-funded education system which emerges
poorly out of international comparisons (Coulter & Coleman, 2003, p. 19). Thus it is not en-
tirely clear, if the education in Ireland really is that much better than in competing countries.
It is clear though that the English language in most parts of Ireland is used as everyday
language except in the Gaeltachtaí (regions where Irish is the everyday language). This is an
important advantage for multinational companies from the United States. Their employees do
not have a problem communicating with the Irish.
Ireland has an extremely flexible workforce compared to other European countries such as
Germany, which is very attractive to many foreign companies who want to get manufacturing
plants inside fortress “Europe” (Sweeney, 1999, p. 67).
1
Fianna Fáil is the dominating centrist party in the Republic of Ireland
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Causes for the Celtic Tiger
ing voluntary groups. Partnership at enterprise level was a key part of P2K (Sweeney, 1998, p.
101).
It is held that the voluntary restraints that have been placed upon wages have been essential
in creating conditions that have allowed indigenous and foreign businesses to flourish. The
enormous cuts in public expenditure that marked the late 1980s are held to have established a
desirable, stable macroeconomic environment that, in time, induced investments by some of
the largest and most dynamic multinational corporations in the world. (Coulter & Coleman,
2003, p. 11).
If a single event can point to the birth of the Celtic Tiger, it was the Irish state’s success in
attracting Intel to the country in 1990, at a historically high cost to the Irish state. A signifi-
cant number of IT companies had already located in Ireland during the 1970s and 1980s. But
after Intel located its European site for the production of computer chips near Dublin, nearly
every major player in the computer industry followed. A similar agglomeration of foreign
pharmaceutical companies also located in Ireland. Ireland became highly dependent on the
US-economy (Coulter & Coleman, 2003, p. 38).
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Causes for the Celtic Tiger
ments and low-tax policies. Other countries can learn from Ireland, that long-term invest-
ments into education and infrastructure without increasing debts sooner or later will pay-off.
One has to bear in mind though, that due to “transfer-pricing” GDP growth really is not as
high as statistics show in the Republic of Ireland.
After a recession everywhere else in 2001 and 2002 when the Irish economy still kept
growing though not as fast as before, the Irish economy picked up speed again. Many analysts
would have thought it impossible, but Ireland entered the era of the “Celtic Tiger 2”. It re-
mains to be seen how long the economy can grow with such speed.
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Causes for the Celtic Tiger
References
Allen, K. (2000). The Celtic Tiger: The Myth of social partnership in Ireland. Manchester:
Blackhall Publishing.
Clinch, J. P., & Convery, F., & Walsh, B. (2002). After the Celtic Tiger: Challenges Ahead.
Dublin: The O’Brien Press.
Coulter, C., & Coleman, S. (2003). The end of Irish history?: Critical reflections on the
Celtic Tiger. Manchester: Manchester University Press.
Sweeney, A. (1999). Irrational Exuberance: The Myth of the Celtic Tiger. Dublin: Blackhall
Publishing.
Sweeney, P. (1998). The Celtic Tiger: Ireland’s Continuing Economic Miracle. Dublin: Oak
Tree Press.
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