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How openness to trade rescued the Irish economy

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  • McQuinn, Kieran
  • Varthalitis, Petros

Abstract

In this paper 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 (non-tradable) sector and back to the more productive tradable sector? Prior to 2007 had seen the emergence of a significant, property-related credit boom which resulted in the Irish economy being increasingly influenced by the non-tradable 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 non-tradable 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 non-tradable 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.

Suggested Citation

  • McQuinn, Kieran & Varthalitis, Petros, 2018. "How openness to trade rescued the Irish economy," MPRA Paper 90416, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90416
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    References listed on IDEAS

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    Cited by:

    1. Arribas, Iván & Bensassi, Sami & Tortosa-Ausina, Emili, 2020. "Trade integration in the European Union: Openness, interconnectedness, and distance," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    2. McQuinn, Kieran & O'Toole, Conor & Allen-Coghlan, Matthew & Coffey, Cathal, 2020. "Quarterly Economic Commentary, Winter 2020," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC2020WIN, march.
    3. Kostarakos, Ilias & Varthalitis, Petros, 2020. "Effective tax rates in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS110.
    4. Varthalitis, Petros, 2019. "Fiscal multipliers in Ireland using FIR-GEM model," Papers WP636, Economic and Social Research Institute (ESRI).
    5. André Carrascal & Luis Orea, "undated". "TFP growth, embeddedness, and Covid-19: a novel production model that allows estimating trade elasticities," Working Papers 6, International Society for Efficiency and Productivity Analysis.
    6. Varthalitis, Petros, 2019. "FIR-GEM: A SOE-DSGE Model for fiscal policy analysis in Ireland," Papers WP620, Economic and Social Research Institute (ESRI).
    7. Varthalitis, Petros & Allen-Coghlan, Matthew, 2020. "Comparing two recessions in Ireland: Global financial crisis vs COVID-19," Research Notes RN20200401, Economic and Social Research Institute (ESRI).
    8. Garcia-Rodriguez, Abian & Bergin, Adele & Rehill, Luke & Sweeney, Éamonn, 2021. "Exploring the impact of COVID-19 and recovery paths for the economy," Papers WP706, Economic and Social Research Institute (ESRI).
    9. Keegan, Conor & Brick, Aoife & Bergin, Adele & Wren, Maev-Ann & Whyte, Richard & Henry, Edward, 2020. "Projections of expenditure for public hospitals in Ireland, 2018–2035, based on the Hippocrates Model," Research Series, Economic and Social Research Institute (ESRI), number RS117.

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    More about this item

    Keywords

    Trade; Openness; Reforms; DSGE;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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