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How openness to trade rescued the Irish economy. ESRI WP608, December 2018

McQuinn, Kieran and Varthalitis, Petros (2018) How openness to trade rescued the Irish economy. ESRI WP608, December 2018. [Working Paper]

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    Abstract

    In this paper we examine the performance of the Irish economy over the period 2008 to 2014. In particular we examine whether the recovery observed was due to the successful adoption of structural reforms in labour and product markets or whether the improved performance was due to a rebalancing of the Irish economy, post 2008, away from the disproportionate influence of the construction (non-tradable) sector and back to the more productive tradable sector? Prior to 2007 had seen the emergence of a significant, property-related credit boom which resulted in the Irish economy being increasingly influenced by the non-tradable sector. This was in sharp contrast to the earlier period of the Celtic tiger, which had mainly relied on export-orientated growth. We use a small open economy DSGE model with a tradable and a non-tradable sector to examine this issue. Our results suggest that the financial crisis acted as a rebalancing mechanism for the Irish economy, with the tradable sector contracting less and recovering quicker than the non-tradable sector. Our model-based simulations indicate that the Irish recovery is mostly export-driven with structural reforms playing a very minor role in stimulating growth in the immediate period after the crisis.

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    Item Type: Working Paper
    Subjects for non-EU documents: Countries > Ireland
    EU policies and themes > Policies & related activities > economic and financial affairs > economic growth
    EU policies and themes > Policies & related activities > economic and financial affairs > trade policy
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on/reforms/economic governance
    EU policies and themes > External relations > international trade
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Economic and Social Research Institute (ESRI), Dublin > ESRI Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 26 Dec 2019 14:30
    Number of Pages: 30
    Last Modified: 26 Dec 2019 14:30
    URI: http://aei.pitt.edu/id/eprint/102221

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