Demographics And The Celtic Tiger
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. The changing age structure is the change from high rates of mortality and fertility to low rates of these two things. In general, the high rates of mortality fall before the fertility rates, which causes a “bulge.” This means that there are more people being born at this time than people dying, consequently there are more people in general in this generation. When this generation reaches the age that they can work, the country should have an economic boom due to demographics.
In Ireland, there has always been a low mortality rate. There has also been an increase in the birth rate up until 1980 before methods of contraception were made legal. 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 migration. 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 thus growth increased.
In the past, it was mainly argued that population growth had a negative effect on the growth rate of the income per person, and there has been little evidence to counter this argument. But studies have continually shown the support for the population neutralist view which is “population growth neither systematically impedes nor promotes economic growth.” [3] Basically population growth has no effect on economic growth. More recently though, new evidence has emerged that argues against the previous views and stresses the importance of the population age distribution.
There are two main ideas of the population age distribution. The first states that your age depends on what your actions are in the economy. In general, young people tend to consume more while people that are of working age tend to produce more while the elderly falling somewhere in between the two. 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 the economic growth will tend to slow down. The second idea is the idea of changes in the age structure, mentioned above. The fact that there is a decline in morality first and a decline in morality second causes there to be a lag which causes there to be a population growth in the youth generation, and when they reach working age, there should be an increase in economic growth. [3]
It is important to note that demographic change does not automatically imply economic growth, it simply creates a potential. It is up to the country’s economic policies to help the boom progress. For example, Latin America had very similar demographics which should allow room for a economic growth. Unfortunately there were components that prevented this from happening such as high inflation and political instability. In East Asia, the economic growth known as the “Asian Tiger,” had everything going for them. They had promising demographics as well as economic policies, thus they experienced major growth. Ireland seems to be in a similar situation as the Asian Tiger.
