Background to the Research

• Comparative analysis of the economies of the North and South of Ireland is relatively new. Each economy has tended to be studied separately, with little sharing of knowledge between researchers in the two regions.
  

Research Approach

• The author explores, through the use of historical sources and economic data, the forces that influences economic developments in the North and South through two distinct periods in Ireland's history: 1750-1960 and 1960-96.
  

Main Findings

The Origins of the Two Economies: 1750-1960

• The Act of Union saw the end of protectionism and the expansion of free trade in Ireland. The Act resulted in Ireland competing with the globally dominant British economy. Ireland benefited from the 'over-spill' of the industrial revolution in Britain into other countries, and the Act secured a place in the growing British market for agricultural goods from Ireland.
• The Great Famine exposed and exacerbated existing weaknesses in Ireland's economy. Death and emigration inhibited the development of a vibrant home market for local industry, dampened innovation and pressure for economic reform. Separation from the more industrialised North had gained greater emphasis because the famine impacted more heavily on the more agriculturally based Southern economy.
• The separation of the engineering/industrial North from the agricultural/food producing South, which occurred at the time of partition in 1921, ended any hope of Ireland-wide economic co-operation or planning. Ultimately, partition was not a factor in the long-term decline of the linen, shipbuilding and engineering sectors of the NI economy. Rather, their decline mirrored the overall British experience.
• Post-partition NI experienced a decline in world demand for its products together with a failure to restructure into newer product areas. By the 1950s, the North's indigenous industry suffered from the same problems as the South, dispersal, small size and inward orientation.

Summary

• Despite attempts to establish an industrial base, the economy of the newly independent Republic of Ireland remained dependent on agricultural exports to the British market, whereas the instability of the North's industrial base was cushioned by the economic boom of two world wars. In the late 1950s and 1960s, both the North and the South made separate attempts, through the introduction of various policies, to address the similar problems of a weak industrial base, an interaction of population growth and poor economic performance that resulted in unemployment/underemployment and emigration and an overdependence on the British economy.

The Two Economies During the Troubles: 1960-90

• Both regions have small home markets, therefore each had to specialise in a small range of products, sell in very competitive export markets and import those goods not produced domestically.
• Between 1932-60 there was a rapid growth in indigenous industry in the South. Until the late 1950s these manufactures were protected from international competition by high tariff barriers. Economic collapse in the late 1950s saw the dismantling of tariff barriers in less than a decade and the introduction of a policy intended to attract foreign investment through zero corporate profits tax on manufactured exports and investment grants. Between 1950 and 1993, foreign owed export-orientated firms in the manufacturing sector grew from zero to almost 60% of gross output and 45% of employment.
• NI had always enjoyed free trade with full access to the British and Commonwealth markets. British economic policy towards the North included a regional employment premium scheme of wage subsidies, other subsides and grants. Decline in the North's industrial sectors failed to be matched by sufficient inward investment.
• Whilst total employment in manufacturing on the island as a whole has remained largely unchanged over the last three decades, employment in manufacturing in the North has stagnated and declined from 184,000 in 1960 to 110,000 in 1990. Southern employment consistently rose from 175,000 in 1960 to 232,000 in 1990. In the area of manufacturing the North mirrors the wider decline of UK manufacturing, a phenomenon which was unaccompanied by the growth of private services experienced in the core British regions.
• The inability of the North to attract inward investment at a comparable rate as the South can probably be explained in terms of the Troubles and world economic conditions.
• Within the apparent upsurge in the South's manufacturing sector lurks an inability of the indigenous manufacturing sector to grow and compete internationally, coupled with greater growth in the less employment intensive foreign-owned sector.

The Public Sector

• Employment in the Public Sector grew quickly in both the North and the South from the mid-1960s to the late 1980s. NI's public sector is far greater as a ratio of public/private sector employment than its Southern counterpart.

Labour Market Problems

• Over the past three decades, a consistently high rate of unemployment has persisted in both regions with long-term unemployment in areas of the North linked to the 'Troubles'.

Conclusions

• The economic conditions in Ireland of abnormal demographics, the economic geography of the North-South divide and the near complete economic dependence on the British economy were in place on the island decades before political partition took place.
• Major changes have taken place during the past three decades in the economies of both parts of Ireland. These changes have impacted in quite different ways in each region.
• The 'Troubles' have overshadowed recent economic development in the North. The South has, in relative terms, enjoyed greater economic development because of it's changing demographic structure and the role of inward migration in preventing skill shortages, the consistent build-up of human capital after the educational reforms of the 1960s, the improvements in physical infrastructure, most notably since 1989 as the result of the EU Community Support Framework, the openness of the economy, export orientation to growing markets and products and the rise in inward investment and the stable domestic macroeconomics policy environment.
• The extent of real differences in standards of living between the North and South has been masked by the large-scale financial support of the North by Britain.
• Northern demographic trends are diverging from the European norm, whilst the South's are converging with European trends. The selective system of education in the North has lead to skills shortages. The North's exports are focused on the slower growing British market and to more traditional products, therefore economic openness is less advantageous to the Northern economy. Although the North has in the past enjoyed better physical infrastructure, the South is rapidly catching up.

Enterprise and Industrial Development

• Industrial policy in both the North and the South consists of national and regional agencies (the IDA in the South and the IDB in the North) using incentives to bid for the subcontracting role from global multinational firms and trying to influence the allocation of activities over their respective regions.
• From the 1930s to the 1960s, the South used public policy in the form of import quotas and/or tariffs to boost poor regional competitiveness. In recent decades, public policy has turned to the use of subsidies to labour and capital combined with low rates of corporation taxation in the South.
• NI is weakly integrated into the supply side of the British economy, this is partly due to the conflict of the past 25 years. Although the peace process is likely to improve the situation in the long term, the North will probably remain economically peripheral to Britain.
• Parallels can be drawn between the peripheral status of the economies of the North and South. The South relies on foreign direct investment from the US, Britain and the rest of the EU. Yet the Southern economy is not central to the strategic planning of US based firms. Furthermore, dependence on external investment alone is unlikely to bring about self-sustaining growth in the South.
• Past and present industrial policy in both the North and South suggests the normal processes of clustering and regional concentration were handicapped by the branch-plant nature of investment and by a public policy of geographical dispersal.
• The South has managed to attract enough firms in the computer, instrument engineering, pharmaceutical and chemical sectors in the last three decades of exposure to foreign direct investment to bring about sectional clusters.
• In recent times the South has used tax breaks, grants and a well trained and educated workforce to attract and retain firms. The North has used similar policies, except tax-based incentives, to bring inward investment in a climate dominated by political violence.