Slide 1

THE CELTIC TIGER AND REGIONAL ECONOMIC CHANGE IN IRELAND Proinnsias Breathnach Department of Geography & National Institute for Regional & Spatial Analysis National University of Ireland Maynooth Association of Geography Teachers of Ireland 35th Annual Conference Green Isle Hotel, Naas Road, Dublin 22. October 2, 2009 Slide 2 Celtic Tiger refers to period of high economic growth beginning in 1994 and reaching unprecedented levels 1995-2000. Ireland compared to Asian Tiger economies (S Korea, Taiwan, Hong Kong, Singapore) which achieved similar growth rates in the late 20 th century. Annual Real GDP Growth: Ireland & EU15 (prior to recent expansion). Source: Eurostat Slide 3 Since joining the EU in 1973, Ireland had failed to significantly close the per capita GDP gap with the EU up to the late 1980s. Ireland surpassed the EU average in 1997 and was 35% ahead of the average by 2007. However, note that per capita is not an accurate measure of living standards in Ireland as 15% of GDP leaves the country annually as profit repatriation and other payments. Per capita GDP: Ireland as % EU15 Source: Eurostat Slide 4 Irelands economic development pre-Celtic Tiger What became the Republic of Ireland had little manufacturing industry when independence was achieved in 1922. The protectionist industrialisation policy introduced in the 1930s sought to make Ireland self-sufficient in terms of its industrial needs. This generated significant employment growth in the 1930s and 1940s, mainly concentrated in the Dublin region and other main urban centres. By the 1950s, the domestic market was catered for and the small size of Irish firms ruled out expansion into exports. Economic stagnation ensued causing the abandonment of the protectionist policy and the introduction of an export-oriented industrial policy in the late 1950s based on the attraction of foreign investment. The main attractions included generous capital grants and tax incentives, a cheap but well-educated labour force and, after EU entry in 1973, duty-free access to the main industrial economies of Western Europe. This led to an accelerating inflow of foreign firms, especially after 1973. The government introduced measures (such as the construction of ready-made advance factories) to disperse these firms as widely as possible throughout the country. Slide 5 Planning regions 1964-87 These are the regions referred to in the following graph Slide 6 The period 1961-1991 witnessed a major trend towards the equalisation of each regions share of manufacturing employment relative to population share, with the East region losing is predominant position and the western regions gaining strongly. This dispersal was facilitated by the unskilled nature of the work in most foreign firms and the fact that they made little use of local suppliers of inputs. Ratio of regional manufacturing employment share to regional population share. Source: Census of Population Slide 7 Trends in other sectors The period 1961-1991 saw a continuation of the established outflow of workers from agriculture which mainly affected the small-farm western regions. This period also saw rapid growth in services employment, especially in business services which were disproportionately concentrated in Dublin. Thus, despite the relocation of manufacturing employment towards the west, this was more than counterbalanced in employment terms by the loss of agricultural jobs and the disproportionated concentration of new service jobs in the East. Slide 8 Explaining the Celtic Tiger The key driving force behind the Celtic Tiger was a major surge in the inflow of foreign investment which began in 1993. This is reflected in the growth of employment and especially value-added in foreign firms between 1993-2000. Slide 9 Employment in IDA-su.pported foreign firms grew by 60% between 1993-2000. Source: Forfs Slide 10 Value-added in IDA-supported foreign firms grew more than fourfold between 1993-2000 in real terms (2000 prices; 1990 = 100) Value added: The difference between the value of sales and the value of material & service inputs. Source: Forfs Slide 11 Foreign firm share (2000) Employment 9.7% GDP 31.4% Although a large proportion of the GDP generated by foreign firms leaves the country as repatriated profits, they still have a major spinoff effect elsewhere in the economy, in the form of wages and purchases, due to the large proportion of GDP which they represent. Slide 12 Explaining the surge of inward investment Growing global shortages of workers with IT skills Rising education levels in Ireland Growing supply of skilled workers in 1990s due to 1970s baby boom 1983/84 2002/03 Total in education934,000 913,000 Total in higher ed 48,000129,000 % in higher ed5.2% 14.2% Ireland was increasingly attractive as location for high-skill investment at a time of rapid growth in high-tech economic activity and adoption of new technology in existing industries. The decision (made in 1989) by Intel to locate its first overseas microchip manufacturing plant in Ireland had a major demonstration effect in encouraging other high-tech firms to locate here. Thus, a key feature of inward investment in the 1990s was a much higher level of skill and sophistication compared with that which had occurred earlier. This was reflected in the much higher productivity of workers in these firms (i.e. value-added per workers). Slide 13 The period 1991-2006 witnessed rapid growth in both employment and the average productivity of workers, but the latter accounted for less than half of the rapid rise in living standards (per capital GDP), the main factor here being a sharp drop in the economic dependency rate. This in turn was due mainly to a rapid rise (from 33% to 56%) in the proportion of women aged 15-64 engaged in paid work. Workforce (m) GDP/ worker Per capita GDP Economic dependency rate** 19911.14959,79119,4752.07 20061.93091,60641,6981.20 +68.0%+53.2%+114.1%-58.0% ** Economic dependency rate: The number of people not in paid employment divided by the number of people in paid employment Productivity in the Irish economy 1991-2006* *All values in 2006 prices Sources: Census of Population; Census of Industrial Production Slide 14 A further major development in the 1990s was the growth of inward investment in export services. Source: Forfs Service employment as % total foreign employment Slide 15 Between 1998-2006 the share of total exports accounted for by services rose from under a quarter to almost one half. Note: Services exports include recorded computer media bn (2006 prices) 24.6% 47.9% Composition of Irish exports 1998-2006. Source: CSO External Trade Statistics Slide 16 The main growth areas in service exports have been Business Services (mainly administrative services provided from Ireland for TNC units distributed throughout Europe), Financial Services (mainly via the International Financial Services Centre [IFSC] in Dublin, and Computer Services (mainly software, of which Ireland is now the worlds leading exporter). bn (2006 prices) Composition of services exports 1998-2006. Source: CSO Balance of Payments Statistics Slide 17 Irelands share of global service exports has been rising strongly Source: UNCTAD Irelands share of global services exports Slide 18 In value-added terms, the agricultural sector virtually dropped out of sight between 1991-2006, and actually was producing less at the end of the period. While the Secondary sector (manufacturing & construction) grew strongly, its share of GDP and employment fell due to the even stronger performance of the tertiary sector, which accounted for two thirds of GDP and employment in 2006. % GDP 1991 GDP change 1991-2006 % % GDP 2006 % Empl 1991 Empl change 1991-2006 % % Empl 2006 Primary7.5-17.01.614.8-40.95.4 Secondary38.0+248.234.027.7+52.826.1 Tertiary54.5+359.864.457.6+92.368.5 Sectoral change in GDP & employment 1991-2006 Source: Census of Population Slide 19 Administrative Regions A new set of Regional Authority regions (some of them the same as the old Planning Regions) was introduced in 1994 and is used in the diagrams and tables to follow. Slide 20 There was strong employment growth in all regions between 1991-2006. The Midlands particularly strong performance may be accounted for by the spread into this area of commuters to the Dublin area (the population census records people by where they live rather than where they work). There was partiucularly strong growth in both Secondary and Tertiary employment in the West region, more than counteracting the above- average loss of Primary employment in this region. RegionTotalPrimarySecondaryTertiary Border+56.5-41.9+51.1+101.1 Midlands+74.2-41.8+89.2+128.7 West+69.1-50.9+98.7+128.5 East+64.2-30.2+32.1+82.2 Mid West+54.0-43.0+60.7+87.7 South East+61.0-34.9+62.3+103.1 South West+55.0-40.6+55.8+87.3 Total+61.7-40.9+52.8+92.3 * Excluding Industry not stated Regional employment change 1991-2006*. Source: Census of Population Slide 21 The wide spatial spread of employment growth in the 1991-2006 period is reflected in the spread of population growth in this period (maps below) compared with the period 1926-1991 (following map), although the rapid fall in the agricultural population in the west pre-1991 also contributes to the changing pattern post-1991. Population change 1991-2006 Source: Walsh J (2007) Slide 22 This map shows how population growth between 1921-2006 was strongly concentrated in the Dublin region, and secondarily in the vicinity of the other main cities. Source: Walsh (2007) Slide 23 This table shows the rapid fall in the share of employment taken by agriculture in all regions, from around 20-25% in 1991 (excepting the East region) to less than 10% in 2006. The share of the Secondary sector has remained fairly constant at around 30% (again excepting the East) while there has been strong growth in the tertiary share in all regions. By 2006 this sector accounted for over three quarters of all employment in the East. Region19912006 Prim %Sec %Tert %Prim %Sec %Tert % Border20.730.049.37.729.063.4 Midlands25.528.146.58.530.561.0 West20.925.146.08.429.462.2 East4.426.069.51.920.977.2 Mid West19.729.350.97.330.662.1 South East21.630.348.18.730.660.7 South West18.128.953.07.029.064.0 Total14.927.757.65.426.168.5 Sectoral composition of employment by region. Source: Census of Population Slide 24 Regional distribution of employment in manufacturing and international services The following four graphs show each regions share of manufacturing and state-supported international (i.e. export) services relative to its share of national population for 1991 and 2006. A ratio in excess of 1.0 (see black line) indicates a disproportionate employment share. Note that in these graphs, Dublin is separated from the Mid-East region where several major manufacturing plants are located. These data refer to the location of the jobs themselves, not the location of the workers residences, as with the Census of Population. Slide 25 The South East, Border and Midlands regions have the biggest relative shares of indigenous manufacturing employment (with the Midlands having gained substantially in 1991-2006. The Dublin region has the lowest share and this has been falling. Ratio of employment share to population share: Indigenous manufacturing. Source: Forfs Slide 26 The strongest relative concentration of foreign manufacturing employment is in the Mid West region, with the West, South West and Midlands East all having gained strongly over the period, while the Border, the Midlands and Dublin have been losing out. Ratio of employment share to population share: Foreign manufacturing Source: Forfs Slide 27 Explaining the regional trends in foreign manufacturing employment Mid West: The location of the big Dell computer plant in Limerick. This is now in the process of locating most of its manufacturing activities to Poland. Mid East: Location of the major Intel (Leixlip), Hewlett Packard (Leixlip) and IBM (Mulhuddart) plants West: Main centre for the high-growth medical devices (especially stents) industry (Galway) South West: Main location of the high-growth pharmaceuticals industry (Cork Harbour). Border: Decline and eventual closure of the Fruit of the Loom clothing operation, which once employed several thousand people in a number of locations in Donegal. Slide 28 Combining the previous two graphs together shows quite an even relative regional distribution of manufacturing employment, with the Mid West in the strongest position and Dublin by far the weakest. Ratio of employment share to population share: all manufacturing Source: Forfs Slide 29 This graph shows a highly-disproportionate concentration of export services employment in the Dublin region, location of the IFSC and where the software industry is strongly clustered. This sector has a particularly strong need for urban-based skills and services. While some other regions have been gaining ground, this disparity with Dublin is important given the rising role of export services in the overall economy. Ratio of employment share to population share: Internationally- traded services Source: Forfs Slide 30 All other regions have an average disposable income (after allowing for taxes and transfers payments [e.g. welfare]) of between 80-90% of that of Dublin. All regions gained slightly on Dublin between 1995-2006. It should be noted that Dublin residents pay a higher proportion of their incomes in taxes and received the lowest proportion of transfers, so the gap between Dublin and other regions is significantly reduced by net transfers of tax revenues from Dublin. Disp Income as % East 1995 Growth 1995- 2006 % Disp Income as % East 2006 Border82.964.783.2 Midlands80.768.082.7 West82.568.885.0 East100.063.0100.0 Mid West88.264.888.6 South East82.569.085.1 South West87.165.988.1 Total65.7 Regional distribution of per capita disposable income Source: CSO National Accounts statistics Slide 31 In 1996 Ireland moved from a position of net emigration to net immigration. Emigration fell continuously after 1999, while immigration (mainly from East Europe) rose strongly, attracted by the availability of mainly low-skill jobs in Ireland. Annual Net Emigration/Immigration. Source: CSO Demographic statistics Slide 32 The regional spread of new immigrant workers Between 1991-2006, the number of immigrants in Ireland who were born in countries outside the UK and the USA (from where immigrants to Ireland traditionally came) grew almost ninefold, from 40,000 to 351,000. In other countries the historical pattern has been for unskilled immigrants to concentrate in the main urban centres, and especially the national capital. In Ireland, as the following graph shows, while there is a disproportionate concentration of immigrants from outside the UK/USA in Dublin, there is also quite a reasonable spread throughout the regions. This reflects the wide regional spread of new employment and population growth generally, and the consequent spread in demand for workers in such areas as construction, hotels, bars and restaurants in which new immigrants have been concentrated. The particularly strong growth in the relative share of the Midlands region can be attributed to overspill of commuters from the Dublin region where accommodation is very expensive. Slide 33 Ratio of immigrant* share to population share * Refers to residents born in countries outside UK & USA Source: Census of Population Slide 34 Other aspects of spatial change in the Celtic Tiger period Slide 35 Growth in long-distance commuting linked to the rapidly-rising level of car ownership Source: Walsh et al (2005) Slide 36 Workforce travelling 30+ miles to work 2001/2002 Note the particular concentration in a ring around the Dublin region, with similar rings around Galway, Limerick and Cork Source: Walsh (2007) Slide 37 This map shows the particular concentration of long-distance commuting, in time terms, around the Dublin region, with high proportions of workers from parts of north Wexford, south Wicklow, Laois, northwest Meath and southeast Cavan spending over 90 minutes getting to work each day. Source: Walsh et al (2005). Slide 38 Inter-urban commuting Long-distance commuting is not confined to movement from small towns and rural areas to local urban centres. There is also an increasing amount of inter-urban commuting. While the published population census volumes only list workers by where they live, new data available from the CSO for research purposes shows the actual places where people work. This is made possible via the census question which asks about where people live and work. Slide 39 Inter-urban commuting (cont.) The following table gives an idea of the complexity of urban commuting patterns in Irish towns today. While Youghals population is three times that of Cashel, the number of people working in both towns is almost identical. This is partly due to the fact that a higher proportion of Cashels resident population is in employment (39.2% as against 29.5% for Youghal) which may be related to Youghal attracting a significant retirement population but mainly due to the fact that Cashel attracts almost twice as many incoming daily workers (the proportion of resident workers who work elsewhere is almost the same for both towns). In the cases of Nenagh and New Ross, the situation is reversed these towns have almost identical populations but there are almost twice as many people working in Nenagh. This is partly because a much higher proportion of New Ross residents work elsewhere, but mainly because twice as many workers come in to work in Nenagh as come into New Ross. Killorglin is in the unusual position of having more people working in the town than actually live there, due to a strong influx of workers daily, mainly to the Fexco financial services operation in the town. In the case of Leixlip, 80% of the towns resident workers leave the town daily to work elsewhere, while an even larger number comes into the town to work. This is because Leixlip developed as a dormitory town most of whose residents are service workers working in Dublin. The subsequent location in the town of two major industrial projects Intel and Hewlett Packard is the reason for the huge daily influx of workers into the town from elsewhere. Slide 40 Employment configuration of selected towns 2006 Resident Pop 2006 Employed in town Residents working (anywhere) Residents working in town Residents working elsewhere Incoming workers Cashel2,3381,802916 536 (58.5%) 3801,266 Youghal6,7851,8302,004 1,111 (55.4%) 893719 Nenagh7,7514,7322,760 1,701 (61.6%) 1,0593,031 New Ross7,7092,5432,389 1,000 (41.9%) 1,3891,543 Killorglin1,6271,635512 280 (54.7%) 2321,355 Leixlip14,6767,1216,494 1,327 (20.4%) 5,1675,794 Slide 41 The National Spatial Strategy (NSS) Launched 2002 Objective: Balanced regional development Reduce overconcentration of development in the Dublin area Predicts that, under existing trends, 80% of new population growth will occur in the Greater Dublin Area (GDA) between 2002-2020 [the data presented earlier in this slide show would not appear to support this] Based on European Spatial Development Perspective (ESDP): Reduce dominant position of national metropoles Encourage development of regional cities as independent centres in polycentric urban system Slide 42 The National Spatial Strategy (NSS) Key element of NSS: Focus investment on developing a select number of provincial urban centres These to be known as gateway cities which will act as conduits for attracting investment to their regions Simultaneous development of hubs (smaller urban centres whose role in the strategy is not well explained) Slide 43 The NSS 9 gateways In brown on the map, including Letterkenny/Derry and Athlone/Mullingar/ Tullamore as linked gateways. 8 hubs In blue on the map, including Castlebar/Ballina and Killarney/Tralee is linked hubs. Source: The National Spatial Strategy Slide 44 Problems with the NSS The NSS is supposed to be supported by the National Development Plans (NDPs) 2000-2006 and 2007- 2013 (which identify balanced regional development as core objectives), but regional objectives (including the NSS itself) have not been taken into account in NDP spending. The main element in NDP spending has been focused on improving road links between Dublin and the main provincial centres, which reinforces existing spatial trends. Proposed roads from Dundalk to Limerick and Rosslare to Sligo, which would have improved interregional links and reduced the dominance of Dublin (in line with the ESDP) have not been built. Slide 45 Problems with the NSS (continued) Implementation of the NSS has been very slow to date. A special Gateway Development Fund a key building block in achieving NSS objectives was one of the first casualties of government spending cutbacks in 2008. The NSS has identified too many gateways, most of which have no chance of reaching the level of population and economic activity regarded as necessary for self-sustaining growth. This over-proliferation of gateways and the inclusion of hub towns of unclear purpose suggests that political considerations played a key role in fashioning the NSS. The NSS also fails to set out the measures required to develop the economic structures of the identified gateways along the lines envisaged by the strategy. Slide 46 References cited Walsh J, Foley R, Kavanagh A, McElwain A (2005) Origins, Destinations and Catchments: Mapping Travel to Work in Ireland in 2002. Journal of the Statistical & Social Inquiry Society of Ireland, Vol, XXXV, 1-37. Walsh JA (ed) (2007) People and place: a census atlas of the Republic of Ireland. National Institute for Regional & Spatial Analysis, NUI Maynooth.