Convergence is not automatic: Lessons from Ireland for Central and Eastern Europe

Real Convergence, the process by which poorer economics catch up on richer ones, is by no means automatic. When Ireland acceded in 1973 to what would later become the European Union, its level of income per head (in purchasing power parity terms) stood at around 60 per cent of that of Britain, its dominant trading partner. 1 This ratio had remained largely unchanged over the previous 60 years. Divergence rather than convergence is the norm across the entire world economy. The general consensus is that the orientation of public policy is a crucial determinant of the likelihood of convergence.2 Section 2 of this paper compares aspects of Ireland's current successful phase of economic development with the earlier unsuccessful period, and asks whether, and to what extent, the transformation was due to a reorientation of Irish public policy along lines generally agreed by growth theorists to be conducive to improved performance. If this were the case, it would suggest that Ireland's recent success may simply represent a delayed catching-up process. The lessons to be learnt from Ireland's earlier poor performance, i.e. on how not to proceed, are as important however as those to be learnt from the more recent successful period. Section 3 focuses on factors that determined the precise timing of the turnaround in economic fortunes, and Section 4 considers some features which were specific to the Irish development path; these concern the contribution of EU Structural Funds and the role of foreign direct investment (FDI) in the Irish economy.