Trade, growth and the role of demand - neoclassical and Keynesian explanations of Ireland's post war growth experience

Abstract

This paper examines the nature of the trade growth relationship in post war Ireland. We consider two major theoretical approaches, the Neoclassical and the Keynesian, attempting to identify and contrast the key features of each model. The two models differ noticeably in the importance which they accord to demand constraints and, by corollary, in the extent to which they subscribe to the small open economy (SOE) model of the Irish economy. The structure of the paper is as follows: Section 1 sets the scene for subsequent analysis. It describes the reorientation of trade policy which took place in the 1950s and shows how this shift in policy stance coincided with a significant improvement in economic performance. In Section 2, we introduce the Neoclassical and Keynesian models of growth and consider the different ways in which they incorporate the role of trade in the growth process. Sections 3 and 4 focus more directly on the issues raised in the opening paragraph. It is suggested that the policy strategies implied by the two models may not differ substantially, although the policy instruments undoubtedly will.