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New Research on the Northern Ireland Economy: Problems and Prospects

  • Sent by José Antonio Sierra

viernes 13 de septiembre de 2019, 12:36h

13SEP19.- Brexit has the potential to seriously destabilise the Northern Ireland economy over the coming decade. This has triggered consideration of how to limit the damage to future living standards in Northern Ireland. This paper by authors, John FitzGerald and Edgar L. W. Morgenroth analyses, the difficult economic history of Northern Ireland in recent decades and considers the options for securing a prosperous future for all those who live there. For full paper click here: paper.

Since the Belfast / Good Friday Agreement, Northern Ireland has been the worst performing regional economy in the UK, with output her head growing by only 1.3% a year. This poor performance since 1998 has occurred in spite of an increase in the already large subvention from London. This paper shows that the key factor behind this poor performance is the low growth in productivity.

In turn, limited productivity growth in Northern Ireland is due to the low investment in physical and human capital. The failure to reform the education system to reduce early school leaving and increase graduate numbers is the single most important factor in the slow growth of the Northern Ireland economy.

While output per head in Northern Ireland is much lower than in both the UK and Ireland, the large transfers from the UK government have ensured that the standard of living in Northern Ireland is close to the UK average and above that of Ireland. Public expenditure per head in Northern Ireland is 120% of the UK average, so that public services in the North are often better provided for than those in the South. Other poor UK regions, such as the North-East of England, receive much less generous treatment, leaving Northern Ireland vulnerable to rising English nationalist sentiment.

This dependence of Northern Ireland on transfers from London leaves it very vulnerable to shocks. Brexit will, undoubtedly, have serious negative consequences for the Northern Ireland economy. Possibly more serious for Northern Ireland will be the broader changes taking place in the politics of the UK, which could see a reduction in transfers in the future.

The best economic outcome for Northern Ireland is one where future UK governments commit to providing continuing large transfers for at least a further decade, in return for a change in regional economic policy aimed at promoting economic growth. The educational system needs major reform. Public expenditure needs to be reallocated from sustaining consumption, especially public services, to investing in education and infrastructure. While painful initially, it would move the Northern Ireland economy onto a sustainable growth path.

Another option, Irish unity, if it involved ending all transfers to Northern Ireland, would produce a dramatic fall in the standard of living there. This could see a complete collapse in the Northern Ireland economy, with calamitous unemployment and emigration. Until the Northern Ireland economy is transformed, transfers will continue to play a vital role in sustaining living standards.

Alternatively, unification, where the Republic of Ireland took over responsibility for the transfers to Northern Ireland, would necessitate a major cut in the standard of living in the Republic of Ireland of at least 5% to 10%, in order to allow Northern Ireland to maintain its current standard of living. This would leave living standards in Northern Ireland between 10% and 20% above the Irish standard of living. This could prove a difficult sell south of the border.

Whatever form Irish unity took there would be a heavy economic cost for both Northern Ireland and Ireland.

The best option for Northern Ireland is that it undertakes major economic reforms over the coming decade to realise its real economic potential. This would leave open the option of Irish unity for future generations, if they so choose. If, instead, they choose to remain in the UK, it would leave them much more secure and better off than they are today.

John FitzGerald

John FitzGerald is an adjunct professor in the School of Social Science and Economics at Trinity College Dublin and in the School of Electrical and Electronic Engineering, UCD. He is a member of the Royal Irish Academy and a former research professor at the Economic and Social Research Institute. He is currently a member of the Commission of the Central Bank of Ireland and Chairman of the Climate Change Advisory Council. He was a Board member of the Northern Ireland Authority for Energy Regulation between 2003 and 2007.

Edgar Morgenroth

Edgar Morgenroth is Professor of Economics in DCU Business School, Dublin City University. He is also an independent member of the National Economic and Social Council, a Fellow of the UK Academy of Social Sciences and a Fellow of the Regional Studies Association, having served as its vice chairman and treasurer. He has held positions at the Economic and Social Research Institute (ESRI) for almost twenty years, and has worked at Keele University and the Strategic Investment Board in Northern Ireland.

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