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Productivity on the island of Ireland - A tale of three economies

Productivity on the island of Ireland - A tale of three economies

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Authors

Paul Goldrick-Kelly and Paul Mac Flynn

Summary

Northern Ireland (NI) and the Republic of Ireland (ROI) have experienced markedly different economic trajectories in the century since one part of the island gained independence from the United Kingdom. This paper seeks to examine the performance of both of these economies with regard to productivity. ROI began as the weaker of the two regions but a significant influx of FDI has radically changed that relationship. ROI has advanced in absolute and relative terms whereas productivity in NI has stagnated over the past several decades. There is substantial variation in the performance of sub regions within both economies; however, it is within sectoral performance where some of the largest gaps emerge.

 

In order to get some idea of the impact of FDI we isolate firms in ROI under foreign control from the rest of the economy. NI as a whole underperforms both the foreign and domestically controlled sectors of the ROI economy and looks similar to the average European domestic economy. The foreign controlled sector in ROI outperforms its European comparators, often dramatically so. However, there are questions as to how much of this performance can be attributed the behaviour of multi-national corporations particularly with regard to their tax arrangements. The domestic sector of ROI appears to perform relatively well in productivity terms against its European comparators but distortions appear to exist in particular sectors especially since 2014. Data are suggestive of a three-tier economy on the island, with an apparently high productivity foreign controlled sector in ROI likely providing some spill over into its modestly performing domestic economy, while NI is a comparative laggard.

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