Sources of regional divergence in the Celtic Tiger: policy responses

Abstract

This paper presents new evidence on the sources of living standards divergence among Irish regional authority areas during the ?Celtic Tiger? boom period of the 1990s, which has been associated with unbalanced regional development. The paper shows that strong regional living standards divergence during this period was driven both by the emergence of the ?demographic dividend? and by productivity. Productivity divergence was, in turn, driven by the manufacturing sector. Although structural change had a convergent effect on productivity in previous decades, this effect was negligible during the ?Celtic Tiger? boom. The discussion then considers the appropriate response to Ireland?s regional policy dilemma, namely how to address the problem of regional imbalance without compromising national growth and competitiveness. At the beginning of the new millennium, regional policy is back on the agenda with the inclusion of balanced regional development as a key objective in the National Development Plan: 2000- 06. However, delays in the formulation of the National Spatial Strategy gives rise to concern. Based on the results of the paper, it is argued that future growth in regional and therefore national living standards hinges on continued productivity growth in internationally competitive industries based in Irish regions, as demographic factors and structural change are unlikely to continue playing prominent roles. It recommends that policy be targeted at improving regional growth and competitiveness in regional authority areas, rather than aiming for balanced regional development.