Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×

Core Maintenance Message

This is a test maintenance message.

Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-26T01:28:38.856Z Has data issue: false hasContentIssue false

12 - How Openness to Trade Rescued the Irish Economy

from Part III - Case Studies

Published online by Cambridge University Press:  31 March 2020

By
Kieran McQuinn  and
Petros Varthalitis
Edited by
Nauro F. Campos ,
Paul De Grauwe  and
Yuemei Ji
Nauro F. Campos
Affiliation:
University College London
Paul De Grauwe
Affiliation:
London School of Economics and Political Science
Yuemei Ji
Affiliation:
University College London
Get access

Summary

In this chapter, we examine the performance of the Irish economy over the period 2008 to 2014. In particular, we examine whether the recovery observed was due to the successful adoption of structural reforms in labour and product markets or whether the improved performance was due to a rebalancing of the Irish economy, post-2008, away from the disproportionate influence of the construction (nontradable) sector and back to the more productive tradable sector. Prior to 2007, Ireland had seen the emergence of a significant, property-related credit boom that resulted in the Irish economy being increasingly influenced by the nontradable sector. This was in sharp contrast to the earlier period of the Celtic tiger, which had mainly relied on export-orientated growth. We use a small open economy DSGE model with a tradable and a nontradable sector to examine this issue. Our results suggest that the financial crisis acted as a rebalancing mechanism for the Irish economy, with the tradable sector contracting less and recovering quicker than the nontradable sector. Our model-based simulations indicate that the Irish recovery is mostly export driven, with structural reforms playing a very minor role in stimulating growth in the immediate period after the crisis.

Keywords

tradereformsDSGE
Type
Chapter
Information
Economic Growth and Structural Reforms in Europe , pp. 377 - 406
Publisher: Cambridge University Press
Print publication year: 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Andrés, J., Arce, Ó. and Thomas, C. (2017). ‘Structural Reforms in a Debt Overhang’, Journal of Monetary Economics, Vol. 88, 15–34.CrossRefGoogle Scholar
Babecký, J. and Campos, N. (2011). ‘Does Reform Work? An Econometric Survey of the Reform-Growth Puzzle’, Journal of Comparative Economics, Vol. 39, 140–158.CrossRefGoogle Scholar
Babecký, J., Du Caju, P., Kosma, T., Lawless, M., Messina, J. and Rõõm, T. (2010). ‘Downward Nominal and Real Rigidity: Survey Evidence from European Firms’, Scandinavian Journal of Economics, Vol. 112, No. 4, 884–910.Google Scholar
Barry, F. and Bergin, A. (2012). ‘Inward Investment and Irish Exports over the Recession and Beyond’, World Economy, Vol. 35, No. 10, 1292–1303.CrossRefGoogle Scholar
Barry, F. and Bergin, A. (2019). “Export Structure, FDI and the Rapidity of Ireland’s Recovery from Crisis”, The Economic and Social Review, Vol. 50, No. 4, pp. 707–724.Google Scholar
Bergin, A., Conroy, N., Garcia-Rodriguez, H. D., Mc Inerney, N., Morgenroth, E. and Smith, D. (2017). ‘COSMO: A New Core Structural Model for Ireland’, ESRI Working Papers No. 553.Google Scholar
Bi, H. 2010. ‘Optimal Debt Targeting Rules for Small Open Economies’, mimeo.Google Scholar
Cacciatore, M., Duval, R. and Fiori, G. (2012). ‘Short-Term Gain or Pain? A DSGE Model-Based Analysis of the Short-Term Effects of Structural Reforms in Labour and Product Markets’, OECD Economics Department Working Papers, No. 948, OECD Publishing, Paris.Google Scholar
Cacciatore, M., Fiori, G. and Ghironi, F. (2016). ‘Market Deregulation and Optimal Monetary Policy in a Monetary Union’, Journal of International Economics, Vol. 99, 120–137.Google Scholar
Campos, N., De Grawe, P. and Ji, Y. (2018). ‘Structural Reforms, Growth and Inequality: An Overview of Theory, Measurement and Evidence’, in Campos, N, De Grawe, P and Ji, Y (ed.), The Political Economy of Structural Reforms in Europe. Oxford University Press, pp. 1–44.CrossRefGoogle Scholar
CESifo (2014). ‘Ireland’s Recovery from Crisis’, CESifo Forum, Vol. 15, No. 2, 3–31.Google Scholar
Chari, V. V., Kehoe, P. and McGrattan, E. (2007). ‘Business Cycle Accounting’, Econometrica, Vol. 75, 781–836.Google Scholar
Clancy, D. and Merola, R. (2014). ‘EIRE Mod: A DSGE Model for Ireland’, Economic and Social Review, Economic and Social Studies, Vol. 47, No. 1, 1–31.Google Scholar
Clancy, D. and Merola, R. (2017). ‘Countercyclical Capital Rules for Small Open Economies’, Journal of Macroeconomics, Vol. 54, 332–351.CrossRefGoogle Scholar
De Grauwe, P. and Ji, Y. (2017). Structural Reforms and Monetary Policies in a Behavioural Macroeconomic Model. Centre for Economic Policy and Research.Google Scholar
Economides, G., Papageorgiou, D. and Philippopoulos, A. (2017). ‘The Greek Great Depression: A General Equilibrium Study of Its Drivers’, in Bournakis, I et al. (ed.), Political Economy Perspectives on the Greek Crisis. Palgrave Macmillan, pp. 205–220.Google Scholar
Eggertsson, G., Ferrero, A. and Raffo, A. (2014). ‘Can Structural Reforms Help Europe?’ Journal of Monetary Economics, Vol. 61, 2–22.CrossRefGoogle Scholar
European Commission,(2012). ‘Public Finances in EMU – 2012’, Report No. 4/2012, European Economy Series.Google Scholar
European Economy (2011). ‘The Economic Adjustment Programme for Ireland’, European Economy Occasional Paper 76, February.Google Scholar
Fatas, A. (2016). ‘The Agenda for Structural Reforms in Europe’, in Caselli, F, Centeno, M, and Tavares, J (ed.), After the Crisis: Reform, Recovery, and Growth in Europe. Oxford Scholarship Online.Google Scholar
Fitzgerald, J. (2000). ‘Ireland’s Failure and Belated Convergence’, ESRI Working Paper No. 133.Google Scholar
Forni, L., Gerali, A. and Pisani, M. (2010). ‘Macroeconomic Effects of Greater Competition in the Service Sector: The Case of Italy,’ Macroeconomic Dynamics, Vol. 14, 677–708.Google Scholar
Garcia-Cicco, J., Pancrazi, R. and Uribe, M. (2010). ‘Real Business Cycles in Emerging Economies’, American Economic Review, Vol. 100, No. 5, 2510–2531.Google Scholar
Gerali, A., Notrapietro, A. and Pisani, M. (2014). ‘Macroeconomic Effects of Simultaneous Implementation of Reforms after the Crisis’, Bank of Italy Working Paper No. 997.Google Scholar
Gomes, S., Jacquinot, P., Mohr, M. and Pisani, M. (2013). ‘Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment’, International Finance, Vol. 16, 23–44.Google Scholar
Honohan, P. and Walsh, B. (2002). ‘Catching Up with the Leaders: The Irish Hare’, Brookings Papers on Economic Activity, 2002, Vol. 33, No. 1, 1–78.Google Scholar
Irish Government Economic and Evaluation Service, (2014). ‘Quantification of the Economic Impacts of Selected Structural Reforms in Ireland’, IGEES Working Paper.Google Scholar
Klein, P. and Ventura, G. (2018). ‘Taxation, Expenditures and the Irish Miracle’, 2018 Meeting Papers 282, Society for Economic Dynamics.Google Scholar
Koliousi, G., Miaouli, N. and Philippopoulos, A. (2017). ‘Liberalization of Product and Labor Markets: Efficiency and Equity Implications’, Journal of Macroeconomics, Vol. 53, 92–106.Google Scholar
Larch, M., Malzubris, J. and Santacrose, S. (2016). ‘Fiscal Consolidation in Ireland: Recent Successes and Remaining Challenges’, European Economy Economic Brief 011.Google Scholar
Lozej, M., Onorante, L. and Rannenberg, A. (2017). ‘Countercyclical Capital Regulation in a Small Open Economy DSGE Model’, Research Technical Papers 03/RT/17, Central Bank of Ireland.Google Scholar
McCarthy, J. (2015). ‘Fiscal Consolidation and Structural Reforms: The Irish Perspective’, presentation to the German Finance Ministry conference, Berlin, March.Google Scholar
McCarthy, Y. and McQuinn, K. (2017). ‘Credit Conditions in a Boom and Bust Property Market: Insights for Macro-Prudential Policy’, Quarterly Review of Economics and Finance, Vol. 64, 171–182.Google Scholar
McQuinn, K. and Whelan, K. (2018). ‘Europe’s Long-Term Growth Prospects: With and without Structural Reforms’, in Campos, N, De Grawe, P, and Ji, Y (ed.), The Political Economy of Structural Reforms in Europe. Oxford University Press.Google Scholar
OECD (2009). OECD Economic Surveys: Ireland 2009. OECD Publishing.Google Scholar
OECD (2011). Trade Openness, in OECD Science, Technology and Industry Scoreboard 2011. OECD Publishing.Google Scholar
Papageorgiou, D. and Vourvachaki, E. (2017). ‘Macroeconomic Effects of Structural Reforms and Fiscal Consolidations: Trade-offs and Complementarities’, European Journal of Political Economy, Vol. 48, 54–73.Google Scholar
Philippopoulos, A., Vassilatos, V. and Varthalitis, P. (2017). ‘Fiscal Consolidation in an Open Economy with Sovereign Premia and without Monetary Policy Independence’, International Journal of Central Banking, Vol. 13, No. 4, 260–306.Google Scholar
Sajedi, R. (2018). ‘Short-Run Costs of Structural Reforms: What Role for Fiscal Policy?’ in Campos, N, De Grawe, P, and Ji, Y (ed.), The Political Economy of Structural Reforms in Europe. Oxford University Press.Google Scholar
Schmitt-Grohe, S. and Uribe, M. (2003). ‘Closing Small Open Economies’, Journal of International Economics, Vol. 61, No. 1, 163–185.Google Scholar
Schmitt-Grohe, S. and Uribe, M. (2007). ‘Optimal Simple and Implementable Monetary and Fiscal Rules’, Journal of Monetary Economics, Vol. 54, No. 6, 1702–1725.Google Scholar
Schmitt-Grohe, S. and Uribe, M. (2017). Open Economy Macroeconomics. Princeton University Press.Google Scholar
Schoenmaker, D. (2015). ‘Stabilising and Healing the Irish Banking System: Policy Lessons’, presentation to the Central Bank of Ireland-CEPR-IMF Conference ‘Ireland – Lessons from Its Recovery from the Bank-Sovereign Loop’, Dublin, January.Google Scholar
Varthalitis, P. (2019). ‘FIR-GEM: A SOE-DSGE Model for Fiscal Policy Analysis in Ireland’, ESRI Working Paper No. 620.Google Scholar
Whelan, K. (2014). ‘Ireland’s Economic Crisis: The Good, the Bad and the Ugly’, Journal of Macroeconomics, Vol. 39, 424–440.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×