Having returned from a great visit to Ireland, I have been reflecting on the Irish economy and economic miracle that have seen Ireland become a country with one of the highest per capita incomes in the world as measured by per capita GDP. With its membership in the EU and access to the European market, it has pursued an economic strategy which is largely rooted in attracting large foreign multinational firms which has not only boosted activity in finance, research, and digital services but also in manufacturing. Information technology and pharmaceuticals have been particularly important sectors. While much is made of the Irish corporate tax advantage, there is also a highly educated population which provides Ireland with human capital strength.
Ireland is a much smaller country than Canada with a population of only 5 million, but it has some interesting similarities. It is a bilingual country – Irish and English – and it has seen substantial immigration in recent years to the point where nearly 20 percent of its population is foreign-born. This of course represents a remarkable reversal from Ireland’s past as a source of migrants. And with rapid economic growth and substantial immigration, like Canada, it has not been building enough homes and housing prices and rents have grown substantially creating some tension.
However, despite these similar aspects including housing issues between Canada and Ireland, there is one key difference. Ireland’s per capita GDP has soared well past Canada’s. Indeed, as the accompanying figure illustrates, the cross-over year marking the start of this divergence was 1998 and even with the setback of the 2008-09 financial crisis, Ireland recovered and has powered its way to a real per capita GDP that is nearly twice that of Canada’s now. Since 1998, real per capita GDP in Ireland has grown 173 percent whereas in Canada it only increased by 30 percent. And unemployment rates remain quite low even with robust immigration and population growth.
It is true that Ireland’s performance has been truly exceptional and probably represents an outlier rather than the norm. And it is not only doing better than Canada but a lot of other places. Still, given that Canada has many similarities with Ireland in terms of immigration levels and population diversity, high human capital, and access to a large foreign market (the US), why we seem to have similar problems (such as infrastructure and housing deficits) but not the rapid economic growth that went with it is indeed an important and perplexing question. With our own highly educated population, why have we not been able to leverage growth and attract investment? What is holding Canada back given the many obvious advantages we seem to possess?
