The Peace Dividend
Subject Economic growth and development
Topic Comparative Economic Systems
Key Words Economic Growth, Investment, Unemployment
News Story

Peace seems to be a very powerful instrument of economic development. Significant changes to the economy of Northern Ireland have occurred as a result of the Good Friday peace agreement that was signed in 1998. The unemployment rate in Northern Ireland is at 6.1 percent, compared with a 12 percent rate in 1994. Northern Ireland's growth is the fastest in Britain and foreign investment has boomed to record highs. Northern Ireland's growth, while ahead of many European countries, lags behind the Irish Republic and the rest of Britain. Many economists believe that the area's economic potential will only be achieved if there is a permanent peace treaty.

Northern Ireland has many of the same economic characteristics that were responsible for the success of economic development in the Irish Republic: low wages, young, skilled people and corporate incentives. Farming, shipbuilding and textiles, Northern Ireland's principal industries, are in decline. Britain has supported the country by increasing government jobs, which are now responsible for almost a third of total employment. Northern Ireland has only 80 percent of Britain's average per capita wealth.

While Northern Ireland tries to emulate economic growth in the Irish Republic, it has many disadvantages. Violence, of course, has been the major deterrent to economic growth. Foreign investment has totaled $3.2 billion since 1994, rising and falling with ceasefires and renewals of violence. The residents of the area have been battered by over 3 decades of violence and they may not have the same enthusiasm for development as another country in the same situation. Ireland is a member of the European Union, while Northern Ireland is not. The strong British pound disadvantages Northern Ireland's exports to Europe. In comparing Northern Ireland to the Irish Republic, Northern Ireland suffers because Ireland has long-term corporate tax breaks, a cheaper currency and membership in the EU. But Ireland's success may give Northern Ireland the advantage.

Rapid economic growth in the Irish Republic has caused prices to rise, congestion, and labor shortages. If these factors do not cause potential investors to look elsewhere, the substantial financial incentives Northern Ireland is offering may do so.

(Updated January 1, 2001)

1. What are some of the advantages and disadvantages of locating a firm in Northern Ireland compared with the Irish Republic?
2. What is the European Union? Why would membership in the EU be a plus for Ireland?
3. Financial incentives are a favorite tool of economic development. How do financial incentives work, that is, why might they lead a firm to choose one location over another?
4. How important is peace as an instrument of economic development to Northern Ireland? Cite some ways in which a permanent peace would aid economic development in Northern Ireland?
Source Alan Cowell, "After Violence, Possibilities of Renewal" The New York Times, December 12, 2000.

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