Bounce Back: Economic Resilience of Irish Regions (Part 1/2)

Earlier this week, I attended a public lecture given by Professor Ron Martin from the University of Cambridge. Organised by the Department of Geography, School of Natural Sciences, the lecture was one of a series of public lectures by distinguished international lecturers in Geography. Professor Martin, in the lecture which was titled ‘Shocking Aspects of Regional Development: The Economic Geographies of Resilience’, explained the idea of resilience and focused on how to measure regional resilience during recessionary shocks using the cases of the UK and European regions.

Inspired by his lecture, I was wondering how regions in Ireland reacted to and recovered from the economic shocks in the history. It would make the analysis much more comprehensive if all the historical data of employment and income at the regional level was available. For instance, in Ireland the 1980s has been considered to be one of the state’s bleakest time, with high unemployment and mass emigration. Unfortunately, the data of employment at the regional level was only available back to the first quarter of 1998, according to the CSO Statbank Database. Still, the data collected by the CSO enables a close examination of how regions in Ireland were affected by the 2008 financial crisis, which is the focus of this blog.

Figure 1. Growth and recessionary shocks in employment in Ireland, quarterly, 1998(1)-2015(1), NUTS 2

Growth and recessionary shocks in employment in Ireland, quarterly, NUTS 2

Source: CSO.

Figure 1 shows how employment (persons aged 15 years and over) in the two NUTS 2 regions of Ireland has changed during the first quarter of 1998 and the first quarter of 2015. Although the two regions seem to show similar patterns of rise and fall in employment, there are some differences between them. Between the first quarter of 1998 and the third quarter of 2007, when the employment in both regions peaked, it was the so-called BMW region that outperformed its more advanced Southern and Eastern region counterpart in employment growth, which may partly reflect the Irish government’s increasing focus on a more balanced regional development from the late 1990s. Nevertheless, both regions witnessed significant growth in employment during this period.

Then came the 2008 financial crisis and followed the recession. In both regions, the employment had been constantly decreasing for 18 quarters from the third quarter of 2007 until the first quarter of 2012. Specifically, the employment index of the BMW region dropped from its peak at 155.7 to 127.7 over this period, while the index of the Southern and Eastern region declined from 142.9 to 121.3.

Table 1. Persons aged 15 and over in employment (000s) by NUTS 2, 1998(1)-2015(1)

BMW SE
Phase 1: Growth
1998Q1 357.5 1128.4
2007Q3 556.8 1612.8
🔺1998Q1-2007Q3 199.3 484.4
%1998Q1-2007Q3 55.7% 42.9%
Phase 2: Recession
2007Q3 556.8 1612.8
2012Q1 456.4 1368.7
🔺2007Q3-2012Q1 -100.4 -244.1
%2007Q3-2012Q1 -18.0% -15.1%
Phase 3: Recovery
2012Q1 456.4 1368.7
2015Q1 481.7 1447.8
🔺2012Q1-2015Q1 25.3 79.1
%2015Q1-2015Q1 5.5% 5.8%

Source: CSO.

Table 1 compares the employment performance of the two regions in the three different phases, namely growth (1998Q1-2007Q3), recession (2007Q3-2012Q1) and recovery (2012Q1-2015Q1). In general, the BMW region showed higher growth in the first phase, but was more heavily hit during the second phase, and exhibited a slower recovery in the third phase. Its Southern and Eastern region counterpart shows relatively stronger resilience in the face of the 2008 financial crisis and slightly faster recovery from the shock in the recent years.

Figure 2. Growth and recessionary shocks in employment in Ireland, quarterly, 1998(1)-2015(1), NUTS 3

image (12) (1)

Source: CSO.

Figure 2 shows how employment (persons aged 15 years and over) in the eight NUTS 3 regions of Ireland has changed during the whole period. It, in comparison to Figure 1, reveals more comprehensively the reaction and recovery of localities in the country. Table 2 below compares the duration of the recession in each of the eight regions, i.e. the period of time between when the employment peaked and when the employment declined to the lowest point.

Table 2. Duration of the recession, NUTS 3

Start End Duration
South-West 2007Q3 2011Q1 14 quarters
Midland 2007Q3 2011Q3 16 quarters
South-East 2007Q4 2012Q1 17 quarters
Dublin 2007Q3 2012Q1 18 quarters
Border 2007Q3 2012Q4 21 quarters
Mid-East 2007Q3 2013Q3 24 quarters
Mid-West 2007Q2 2014Q1 27 quarters
West 2007Q3 2015Q1 30 quarters

Source: CSO.

A clear message from Table 2 is that the Irish regions differ significantly in terms of how long it takes for them to go through the recession. South-West was the region in Ireland that got out of the recession earliest (14 quarters), followed closely by the Midland, South-East and Dublin regions. Relatively, the Border, Mid-East, Mid-West and West faced more difficulties with the recession and started their recovery later than the rest of the country.

Given that Ireland is a relatively small country, it is noteworthy that there still exists significant differences in the resilience of regions. The determinants of regional resilience are complex and could be examined from various perspectives, one of which could be the industrial structures of different regions.

(To be continued)

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Closing the Gap or Widening the Divide? A 10-year analysis of disposable income in Ireland’s counties

Closing the Gap or Widening the Divide?

A 10-year analysis of disposable income in Ireland’s counties

The recovery of Ireland’s economy from the 2008 crisis has been labelled by many people as a ‘two-tier’ one, with Dublin leading the way while the rest struggling.

In 2014, the Central Statistics Office (CSO) released figures of disposable income in Ireland’s counties in 2011. There have in consequence seen reports analysing the data and suggesting Dublin was the only county with disposable income increasing following the economic crash.

Indeed, Dubliners saw their spending power rise from an average of €20,697 in 2010 to €21,329 in 2011, while the rest continued to see their average disposable income per person falling during the same period.

This blogpost aims to provide a longer perspective on the issue of county-level disposable income in Ireland, examining the relevant data between 2002 and 2011.

Table 1: Index of disposable income per person by county (or city) and census year (Ireland=100)

County 2002 2008 2011 Δ 2008-2011 Δ 2002-2011
Carlow 84.7 93.3 96.7 3.4 12.0
Donegal 75.7 79.7 83.4 3.7 7.7
Leitrim 86.0 92.6 92.4 -0.2 6.4
South Tipperary 92.6 97.1 98.8 1.7 6.2
Sligo 89.5 93.5 95.6 2.1 6.1
Galway (City and county) 90.2 96.8 96.2 -0.6 6.0
Kerry 83.4 86.1 89.3 3.2 5.9
Mayo 86.9 89.1 92.4 3.3 5.5
Limerick (City and county) 95.7 97.2 101 3.8 5.3
Cork (City and county) 97.0 98.7 102.2 3.5 5.2
Wexford 88.8 96.4 92.0 -4.4 3.2
North Tipperary 92.2 95.1 95.1 0.0 2.9
Laois 90.6 92.6 92.9 0.3 2.3
Kilkenny 88.0 94.7 89.2 -5.5 1.2
Cavan 86.8 90.8 87.9 -2.9 1.1
Ireland 100.0 100.0 100.0 0.0 0.0
Westmeath 94.6 90.8 93.7 2.9 -0.9
Offaly 89.0 87.4 88.1 0.7 -0.9
Monaghan 86.3 88.1 85.3 -2.8 -1.0
Longford 91.6 90.1 90.0 -0.1 -1.6
Waterford (City and county) 98.7 97.6 96.6 -1.0 -2.1
Clare 94.0 94.8 91.6 -3.2 -2.4
Meath 100.3 101.8 97.4 -4.4 -2.9
Roscommon 90.2 90.6 86.0 -4.6 -4.2
Louth 99.4 98.9 95.0 -3.9 -4.4
Dublin (City and county) 116.7 112.1 111.9 -0.2 -4.8
Kildare 109.5 106.9 103.8 -3.1 -5.7
Wicklow 105.2 99.0 98.4 -0.6 -6.8

Source: CSO.

Table 1 shows the disposable income levels of Ireland’s counties in 2002, 2008 and 2011, all in relative to the state average of 100. In particular, the counties are ranked by the last column – the change between 2002 and 2011 – to indicate what places have been climbing up and what places have been falling down.

Carlow and Donegal are the two most impressive areas, where the disposable income levels have increased by more than 7 percentage points, followed by Leitrim, South Tipperary and Sligo.

By contrast, counties of Kildare and Wicklow have seen their positions significantly weakening with a decline of more than 5 percentage points in the index. County Wicklow, of which the disposable income level index was 105.2 in 2002, fell behind the national average in 2011.

Dublin, when the city and county combined, also witnesses a sharp drop (4.8 percentage points) in the index of disposable income.

The next to the last column further shows how the counties performed after the economic crisis took place in 2008. Donegal once again is among the areas showing the largest positive improvements, following closely just behind Limerick. Kilkenny and Roscommon, instead, have been hit hard by the crisis.

During the period 2008-2011, Dublin (city and county) saw a modest decrease of its index from 112.1 to 111.9, suggesting a continuing narrowing gap between itself and the national average.

Although it might be right that Dublin was the only county that saw its disposable income per person increasing in 2011, one should not ignore the fact that the advantage of Dublin has been diminishing in the longer perspective. More importantly, counties like Limerick, Donegal, Carlow, Mayo, Kerry and Cork, have been catching up, even during the recent difficult years.

UNIVERSITIES AND FOREIGN DIRECT INVESTMENT IN IRELAND: AN EMBEDDEDNESS PERSPECTIVE (PART 3/3)

(Continued from Part 2/3)

Similar to the fact that Ireland has a binary system of higher education, the business sector in the country is also divided into two, with one being foreign-owned and the other being indigenous.

The historical success of Ireland in attracting a substantial amount of FDIs has led to an industrial base strongly dependent on multinationals and oversea exports. It is not difficult for one to find that a relatively small number of foreign-owned companies are responsible for the majority of Business Expenditure on Research & Development (BERD) in Ireland, an indication to show not only the strong performance of multinational firms but also the ‘unsatisfactory’ performance of the so-called indigenous firms.

More interestingly, it seems that foreign-owned firms and indigenous firms are concentrated in distinct sectors; for example, high-tech sectors like ICT and pharmaceutical are obviously dominated by multinationals.

A comparison of the amount of expenditure on R&D by sector reveals that the higher education sector, which is, in this regard, largely dominated by the seven universities plus the Dublin Institute of Technology, outperforms the indigenous business sector and the government (and public) sector.

The strengths of Irish universities have further been intensified after nearly a decade of state support in the area of research and development. Admittedly, the Irish government has also called for, and indeed made some efforts in supporting the growth of indigenous small to medium-sized firms, this sort of investment is not comparable to what universities have been receiving.

It is based on these facts that we argue that it is time Irish universities build closer relationships with foreign-owned companies during a period when previous advantages of the country are in the risk of weakening. In particular, we would like to introduce an embeddedness approach which is adapted from the ‘Triple Helix’ model popularised by Etzkowitz and Leydesdorff in 1997.

Figure 1 A ‘Node-Channel’ model of G-U-I interactions in Ireland (Foreign-own firms on the left; Indigenous firms on the right)

Image

Figure 1 above shows a ‘Node-Channel’ model of interactions of three main regional stakeholders in Ireland – government, university, industry – in which node stands for strength of each sector and channel refers to linkages between each other. Following the categorisation of many previous studies, in this figure we divide the industry node into two smaller nodes (foreign-owned firms and indigenous firms). In relative terms, we consider that Ireland has R&D strength in the university sector and foreign-owned firms, less so in domestic firms and the government sector, however there is plenty of room for improvements in inter-firm linkages and university-industry collaborations.

UNIVERSITIES AND FOREIGN DIRECT INVESTMENT IN IRELAND: AN EMBEDDEDNESS PERSPECTIVE (PART 2/3)

(Continued from Part 1/3)

To a certain extent, the comparative advantages of those areas where Ireland used to be perceived as having significant strength are now diminishing, or more accurately, weakening. In their book – The Economy of Ireland – O’Hagan and Newman (2011) have made it clear that great challenge is currently faced by Ireland as the EU puts more pressure on the country ‘to harmonise corporation tax rates and increased restrictions on the provision of grants: two important policy tool options in relation to FDI for the Irish government in the past’.

The authors have also addressed the possibility of changes which could be made to the corporation profit tax rate. A general concern is that, if ‘firms are forced to pay taxes on profits in the country where they are earned and can no longer process profits through Irish subsidiaries’ (O’Hagan and Newman, 2011), the attractiveness of Ireland as a place to invest may decrease. The Irish Independent recently published a statement made by the U.S. President Obama which proposed exactly this idea.

Nevertheless, it has also been pointed out that, the end of transfer pricing may actually increase the level of actual economic activity that takes place in Ireland, ‘given the firms will be forced to site their real activity in Ireland to avail of the low tax rate’ (O’Hagan and Newman, 2011).

In our perspective, an increased level of economic activity shown by foreign-owned firms in the absence of transfer pricing would only come true if those firms are effectively embedded within the national innovation system, which comprises horizontal and vertical knowledge and production networks. In particular, the benefits from being engaged with innovation activities should be perceived by those firms to outweigh the potential loss from being without the low tax rate, although the comparison is subjective to firms themselves.

Those networks in essential bring foreign-owned firms, indigenous firms and key innovation actors (e.g. universities and public research organisations) together, through which knowledge is exchange and innovative products and services are created. Without these interactions, FDIs are not deeply embedded in the territory; instead, the main reason for their presence is finance related. Therefore, it should not come as a surprise when they (FDIs) are found to shift away to wherever they could pursue those benefits.

Limited study has been found to focus on the importance of embedding FDIs in influencing Ireland’s economic development in especially mid- to long period. A wider search for empirical analysis of other nations or regions has been done in the hope that those studies are able to shed some light in the direction.

An interesting article is that by Simmie and Martin (2010), in which the authors compared regional economic resilience of two UK city regions – Cambridge and Swansea – that have experienced quite different economic histories and outcomes over the past 40-50 years. It could be argued that the case of Swansea shows, to a certain degree, some similarity to what approach Ireland has been undertaking. To be more specific, Swansea turned to FDI from the 1970s and offered relatively cheap land and labour to attract inward investments, in particular Japanese investments in the electronics sector.

After examining the growth of the two city regions during the last 50 years, the authors tended to conclude that Cambridge has been more resilient than Swansea. The conscious decisions of local entrepreneurs making use of endogenously created new knowledge, the co-evolution of the attitude of Cambridge University to commercial exploitation of IPRs, and the facilitation of the development of science parks were considered by the authors to be the major driving factors of the long-term development of adaptive and resilience capacities in Cambridge. By contrast, whilst FDIs brought sufficient codified external knowledge for the establishment of manufacturing branch plants into the Swansea area, the region became locked into the technological paradigm owned by foreign firms.

The authors concluded the decline of the Swansea economy by stating, ‘the shock of the recession exposed the weakness of relying on exogenous knowledge generated by multinational companies’ (Simmie and Martin, 2010).

Since the launch of the National Development Plan in the 2000, much effort has been devoted into investing research and development (R&D) in universities and domestic business sector. All of these could be seen as part of government’s commitment to building the so-called smart economy. A functional, sustainable, and competitive smart economy should be one in which not only both endogenous and exogenous knowledge is created but they are also exchanged and shared effectively.

Although we do not underestimate the importance of indigenous firms in any way, we argue that Irish universities (or the Irish higher education sector) are best placed to build high-level research-intensive partnerships with foreign-owned firms in Ireland, as means of both embedding FDIs and building the smart economy.

(To be continued…)