Ireland - A Trading Nation

1.1 Impact of Trade

1.1.1 Ireland's performance as a trading and exporting nation has in recent decades been a remarkable success story. Exports constitute an increasing share of the economy's total output of goods and services, make a substantial contribution to employment maintenance and creation and continue to yield a positive trade surplus.

1.1.2 In 1996, the total value of merchandise exports amounted to just over £30 billion and generated a trade surplus of £7.7 billion. In employment terms, taking the economy as a whole, over half a million jobs are now directly and indirectly supported by exports, with one job in four directly dependent on exports. When indirect influences are taken into account, almost one job in two depends on exports ¹ . Exports of goods and services now contribute over 80% of GDP.

1.2 Transition to an internationally oriented economy

1.2.1 Belief and confidence in our ability to be successful in an open global trading environment has not always been a feature of our trade policy. The early 1930s saw an inward-looking approach, with high protective tariffs. This led to the development of local industry to supply the domestic market, with a consequent increase in industrial employment. However, many of the firms established were small and suffered from low productivity.

1.2.2 The gradual change to a more outward-looking approach took place in the period from the late 1950s to the mid 1970s. During this period, our economic performance was significantly better than in the immediate post-war years. Real growth in GNP increased from 1% to around 4% per annum. By 1968, industrial employment had almost equalled employment in agriculture.

1.2.3 Since 1960, the annual rate of growth in the value and volume of imports and exports has been very significant (Figure 1.1). Of even more significance has been the rapid diversification of markets beyond the UK to the rest of Europe and to the US. Significant landmarks in the transition to the opening up of the economy were the Anglo Irish Free Trade Agreement of 1965 and EC entry in 1973.

Fig. 1.1 Trade Growth 1960-1996

Import/Export Growth 1960-1996 - Goods and Services: Current Prices

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Source CSO

1.3 Liberalisation, Economic Growth and Exports

1.3.1 Since the opening up of the economy commenced in the 1960s, the standard of living has improved dramatically. The industry and services sectors have become the engine of economic and employment growth. The structure of the economy has changed, with a reduction in the relative contribution of agriculture to GDP and a corresponding growth in the share of industry and services (Figure 1.2).

Fig. 1.2 Gross Domestic Product by Sector

Source: Forfás (constant 1995 Prices)

1.3.2 This change in structure has been accompanied by a growth in the importance of foreign trade and a diversification of markets.

1.3.3 Since the 1960s, the proportion of Irish output which is exported has more than doubled (Figure 1.3).

Fig. 1.3 Proportion of GDP Exported Exports of Goods and Services in current Prices

Source CSO

1.4 Trade Diversification

1.4.1 Even more significant than the growth in our foreign trade has been its diversification to wider markets. In 1960, 75% of merchandise exports went to the UK. In 1996, that share had fallen to 24.8%. The share of exports going to the rest of the EU has risen from 7% in 1960 to 43.8% in 1996. A very significant reduction has thus been achieved in the dependence on one market alone, a feature that had characterised trade previously (Figure 1.4). The bulk of our trade is with developed economies. Nearly 70% of our exports go to the EU, while nearly 90% go to OECD Member-Countries. 57% of our imports come from the EU while OECD countries account for 81% of all imports. Imports from the UK now stand at 35% of the total compared to 50% in 1960, while the rest of the EU now provides 22% of our imports compared to 18% in 1960 (Figure 1.4).

Fig. 1.4 Irish Trade Pattern 1960 and 1996

Source: CSO

Exports 1996

Source: CSO

Source: CSO

Source: CSO

1.5 Product Composition of Irish Trade

1.5.1

The composition of Irish exports by product category has changed in the period since liberalisation began. The share of agriculture in our exports has declined while the share of industrial exports has increased dramatically. (Figure 1.5).

Fig. 1.5 Irish Exports by Product Category

Total Exports by Product Category	1960 (% of Total)	1996 (% of Total)
Agriculture	59%	16%
Raw Materials & Mineral Fuels	10%	2%
Chemicals & Pharmaceuticals	1%	22%
Data Processing	-	21%
Machinery and Equipment	10%	17%
Furniture, Clothing and Textiles	5%	3%
Other Manufactures	3%	14%
Miscellaneous	12%	5%
Total	100%	100%

Source: CSO

1.5.2

The composition of Irish imports has also changed in this period (Figure 1.6). The changes largely mirror those noted above in relation to exports, reflecting the increased impact of the trading activities of multinational companies.

Figure 1.6 Irish Imports by Product Category

Total Imports by Product Category	1960 (% of Total)	1996 (% of Total)
Agriculture	18%	8%
Raw Materials & Mineral Fuels	21%	6%
Chemicals & Pharmaceuticals	8%	12%
Data Processing	-	17%
Machinery and Equipment	34%	34%
Furniture, Clothing and Textiles	7%	5%
Other Manufactures	4%	10%
Miscellaneous	8%	8%
Total	100%	100%

Source: CSO

1.6. Growth of International Services Trade

1.6.1

Trade in International Services is growing apace, with global services exports having doubled in the ten year period 1980 to 1990. The active promotion of services trade offers significant advantages for Ireland, such as diversifying our trade profile and overcoming our geographically peripheral location. An Bord Trachtála's strategy for increasing Irish services exports aims to increase their value from a base of £635million in 1994 to £ 1.6 billion by the year 2001.

1.7 Contribution of the Foreign-owned Exporting Sector

1.7.1

Our success in attracting foreign investment has contributed significantly to our export growth. A significant characteristic of the industries that have been attracted to this country has been their export orientation, with many using Ireland as a base to service markets in Europe and further afield. In 1995, of the £23.5bn exported by companies with more than 19 employees, £16.5bn or 70% was accounted for by foreign-owned companies.

Figure 1.7 Contribution of Foreign-owned Companies

Source: Irish Economy Expenditures Survey, Forfás Figures for 1995 are provisional

1.8

KEY POINTS

• The Irish economy has a high dependence on trade with exports now accounting for over 80% of GDP and supporting one in two jobs directly or indirectly.
• An increasingly liberal trade policy approach has been beneficial for Irish economic development and has contributed to employment creation and to improvements in the standard of living.
• The industry and services sectors have become the main engine of economic and employment growth, with foreign-owned companies accounting for the bulk of our exports.
• The relative significance of the UK market has declined from a position in 1960 when it accounted for 75% of exports and 50% of imports to the position in 1996 when these shares had fallen to 25% and 35% respectively.

The OECD area now takes almost 90% of total merchandise exports and supplies 81% of our imports. Our main markets are the EU and other developed countries.

Footnotes

1 Bacon and Walsh, Exports and Employment - "The Irish Experience" 1985-1995 (An Bord Tráchtála, 1996)