Demographics And The Celtic Tiger

Home | Demographics | Strategies | Joining the EU | Economic Boom | Celtic Tiger II | Lessons | Source Page

Setting the Stage

The Irish economy before and after Ireland’s independence from the United Kingdom was known for its lack of success more than anything. Some suggest that Ireland’s geographic location was it’s major disadvantaged as it was “living in the shadow of a giant” [1]. A definite factor that helped weaken Ireland's economy, however, was the division of Ireland after the War of Independence. In 1922, when Ireland gained independence from the U.K, Ireland was divided into two territories; the Irish Free State (now known as the Republic of Ireland), which consists of twenty-six counties of Ireland, and Northern Ireland, which consists of six counties that have remained a part of the U.K. Ireland's econmoy struggled with the new division of the country, even though economic conditions were unstable to begin with before the separtation. Both economies of the Republic and the North were weak, however, the North had the advantage of receiving financial subsidies from the U.K., which contributed to a higher standard of living in the North [4].

Description

Between the years of 1881 and 1981, Ireland experienced a century of population stagnation, which is evident from Table 1. This occurred as a result of an increase in natural population that was offset by substantial rates of net emigration (more than 400,000 people left Ireland between 1951 and 1961 [2]). During this 100-year span, Ireland did of course experience economic progress, as indicators of economic performance show a rising standard of living [1]. This progress, however, was relatively unimpressive. In 1921, 1961, and even in 1981, Ireland remained a traditional agricultural economy. Much to its disadvantage, the Irish economy seemed to be resisting the industrialization process that was occurring elsewhere .

Description

Demographics

There are many explanations for what contributed to the economic growth of Ireland, including increased exports, increases in foreign direct investment, and increased levels of education. One explanation that is being examined further is the link between demographic change and economic growth. In the past, it has been thought that demographic change does not effect economic growth, but in the context of Ireland's economic boom, this is not the case. In Ireland, the changing age structure has had important relevance in the economy. Changing age structure is the conversion from high rates of mortality and fertility to low rates of mortailty and fertility. In general, changing age structure occurs when high rates of mortality fall before fertility rates, which as a result causes a “bulge” in population growth. This means that there are more people being born than there are dying, and this leads to a growth in population. When the generation that experiences the poputlation growth "bulge" enters the work force, the country will economically benefit from increases in employment and production.

In Ireland, there has always been a low mortality rate [3]. On the contrary, birth rates were high until contraception was made legal in Ireland in 1980. The combination of low death rates and high birth rates would have led to a dramatic growth in population, however, this growth was offset by significantly high rates of net emigration. Therefore, the effect of the changing age structure did not have the results that would generally be expected. Despite these factors, Ireland still experienced population growth. Once those who were born during this growth in population were old enough to enter the work force, production in Ireland increased and therefore there was an increase in economic growth.

In the past, it has mainly been argued that population growth has a negative effect on the growth rate of income per person. Studies, however, have continually supported the population neutralist view, which is that population growth has no effect on economic growth. More recently, though, new evidence has emerged that counters previous theories and stresses the importance of the population age distribution.

There are two main ideas of the population age distribution. The first states that age influences one's economy behavior. In general, the younger age population tends to consume more, the working age population tends to produce more, and the older age population falls somewhere in between. So, if a country has a large working age population, there will tend to be an increase in economic growth whereas if a country had a large younger and elderly population, economic growth will tend to slow down. The second notion of the population age distribution is the idea of changes in the age structure, which was defined above. This says that when a generation experiences a large growth in popultaion, economic growth is expeced in the future.

The legalization of birth control in 1980 was economically beneficial. From 1922 to 1980, Ireland strictly rejected the use of any form of contraception. Throughout this time many women found excuses to use birth control, and through the efforts of the women’s movement, birth control finally became legal. This not only decrease fertility rates, but it also increased the amount of females in the labor force since women were less likely to have to stay at home to raise a family. Therefore, the Irish economy benefited from legalizing birth control.

Description

The graph above shows the Total Fertility Rate in Ireland and the UK. Notice that once methods of contraception were made

legal in 1980, the amount of children per women in Ireland became very similar to that of the UK.

It is important to note that demographic change does not automatically imply economic growth, it simply creates a potential for growth. A country’s economic policies play a large part in whether or not economic advancement occurs and/or is continued. Ireland has implemented successful policies in the past that have set them up for economic growth. One of these policies was developed in the 1950's and was in response to the fact that the “closed economy” strategy had failed. As a result of this failure, Ireland began to create policies that encouraged exports as well as direct foreign investment. Another policy made secondary education free, which allowed for an increase in school enrollments and thus more people went on to obtain a higher level of education. The combination of this education policy with the export oriented policies used the demographic transition to Ireland's advantage. Policies such as these allowed the Irish economy to be more flexible and to profit from the demographic change that was occurring in Ireland. An example of a country whose economic policies did not stimulate growth is Latin America. Specifically, demographics in Latin America were such that there was room for economic growth. Unfortunately, obstacles such as high inflation and political instability prevented the occurrence of an economic expansion. Contrary to Latin American's failure to stimulate economic growth, East Asia had an economic structure that was just right for activating growth. Promising demographics and economic policies lead to what is known as the "Asian Tiger". In the early 1990's, Ireland's economy was in a similar position as East Asia's economy before the onset of the "Asian Tiger". It seemed Ireland was getting ready to unleash a "Tiger" of its own.

Home | Demographics | Strategies | Joining the EU | Economic Boom | Celtic Tiger II | Lessons | Source Page