Accounting for Irish growth: a balance-of-payments-constraint approach

Abstract

Less than 20 years ago, the Irish economy was tired and sluggish, suffering from double-digit unemployment and stagnating incomes. Today, Ireland's "Celtic tiger" economy is one of the fastest growing in the world, exceeding average EUper capita income levels and boasting a thriving technology industry and productivity levels that are among the highest in Europe. In this study, we present a continuous-time disequilibrium model to explain economic growth in Ireland. In particular, we try to identify the key factors explaining the "Irish miracle" by developing a demand-oriented growth accounting methodology based on the balance-of-payments-constraint theory.

Keywords:

• external constraint
• foreign direct investment
• growth accounting
• Irish economy
• tax policy