Celtic Tiger: Ireland's Economic Boom Explained (1995-2007)

What Is Celtic Tiger?

Celtic Tiger symbolizes Ireland's phenomenal economic growth during 1995-2007. In this period, a combination of low taxes, foreign investment, and strategic EU ties propelled the nation from being one of Europe's poorest to an economic success story.

Key Takeaways

The Celtic Tiger refers to Ireland's dramatic economic growth from 1995 to 2007, characterized by a high average annual GDP growth rate of 9.4% between 1995 and 2000.
Key factors contributing to the rapid growth included low corporate taxes, economic openness, a skilled English-speaking workforce, and substantial foreign investment, especially from the US.
Ireland's EU membership and subsequent access to the Single Market and European funds played a crucial role in its economic transformation.
The social partnership program in Ireland contributed to economic stability by balancing wage moderation with tax cuts and social welfare commitments.

The Celtic Tiger Phenomenon Explained

Kevin Gardiner is credited with coining the term Celtic Tiger in a 1994 investment report for Morgan Stanley about Ireland's economy. The period of the Celtic Tiger has also been referred to as The Boom or Ireland’s Economic Miracle.

Why Tiger, and Why Celtic?

The tiger is a global symbol of power and energy; but this is especially true in Asia, where the tiger is linked power and might. The tiger is also associated with passion, ferocity, beauty, speed, cruelty, and wrath. The "Celtic" part of the nickname denotes Ireland as being one of the Celtic nations.

The term “Celtic Tiger” is a reference to the Four Asian Tigers, the nations of Singapore, Hong Kong, Taiwan, and South Korea, which underwent extremely rapid industrialization and economic growth rates in excess of 7% a year between the mid-1950s (for Hong Kong) and the early 1960s (for the other three countries). This rapid growth, which slowed in the 1990s, ultimately transformed these countries into developed, high-income countries, world-leading, international centers of finance, and leading manufacturers of electronics components and devices.

Key Drivers Behind the Celtic Tiger's Economic Growth

Many factors are cited as causes for the Celtic Tiger: low corporate taxes, low wages, U.S. economic growth, foreign investment, a stable economy, sound budget policies, EU membership, and subsidies. Economists still study the impact of each of these on Ireland's economic success.

Foreign Investment

Ireland attracted foreign investment due to its EU membership, low tax rates, government grants, and an educated, English-speaking workforce. U.S. companies like Dell, Intel, and Gateway moved some operations there, encouraged by the IDA and other entities.

The rapid economic growth during this same time period in the U.S., coupled with America's strong trade relationship with the EU, was a major contributor to Ireland's growth. Some U.S. companies still use Ireland as their home base for their European market operations.

Deregulation

In 1999, Ireland was ranked in the top three countries for economic openness by the Organisation for Economic Co-operation and Development (OECD). And compared to other countries in the EU, Ireland's government intervened minimally in the activities of corporations. As a result of this, it was able to attract more foreign investment.

The International Financial Services Centre in Dublin created high-value jobs in accounting, legal, and finance. EU-backed liberalization of public utilities and transport made air travel cheaper, boosting tourism.

Fiscal Policy

Ireland's corporate tax rate is among the lowest in Europe. There is some debate about what came first: some economists argue that Ireland’s status as a low-tax economy was a product of the Celtic Tiger (and not its cause). Regardless, low taxes combined with macroeconomic and budget stability created high levels of investor confidence and an increase in private sector activity.

Social Partnership

Social Partnership refers to the tripartite, triennial national pay agreements reached in Ireland. The process began in 1987 to facilitate the difficult financial decisions necessary to put Ireland's economy back on track after high inflation, weak economic growth, increased emigration, unsustainable government borrowing, and national debt.

The public sector in the country was heavily unionized. Trade unions committed to wage moderation in return for the government's commitment to the welfare state. This commitment included income tax cuts and ongoing participation in economic decision-making through social partnership committees. The outcomes of these pay agreements are considered to be significant contributors to the Celtic Tiger because they contributed to a boom in public finances, ensuring macroeconomic and labor force stability.

Human Capital

Ireland's well-educated and skilled workforce allowed the country to attract long-term foreign direct investment. Since the 1960s, the country had invested important financial and human resources in education, particularly with the introduction of free secondary education and grants for third-level education.

This led to one of the best-educated workforces in Europe by the 1990s. And having an English-speaking also helped the country supply well-qualified entrants to the labor market. In fact, many people who left the country in the 1980s returned back to Ireland during the boom, and ultimately, powered the massive increases in productivity through the 1990s.

European Structural and Cohesion Funds

Since joining the EU in 1973, Ireland has had lucrative access to markets that it had previously reached only through the United Kingdom.

In addition, the EU has pumped huge subsidies and investment capital into the Irish economy. These funds were crucial to Ireland's development by investing in transport infrastructure, education, training, and industry.

Small Size

The majority of the richest European countries are small. This is because it is easier to achieve good governance and social consensus in a small country.

Peace

The peace process in Northern Ireland and the Good Friday Agreement of 1998 contributed to Ireland's image abroad. It also contributed to a stable operating and political environment; the government could shift its focus from security to economic development.

Governance

Over decades, the Irish government actively promoted business growth by investing in human capital and attracting foreign investment, marketing itself as an investment location. This approach led to a strong infrastructure in banking, finance, telecommunications, and logistics.

Globalization

Ireland is one of the most globalized economies on the planet, due to decades of state protectionism and successive economic failures. At first, Irish people left the country to go work in other countries for foreign firms. Now, many foreign firms are located in Ireland. In this way, Ireland harnessed economic globalization for the benefit of its own citizens, in order to improve the welfare state.

Tracing the Rise and Fall of the Celtic Tiger

Miraculously, Ireland jumped from being one of the poorest countries in Europe to one of the richest in only a matter of years. Ireland’s first boom was in the late 1990s when investors (including many tech firms) poured in, drawn by the country's favorable tax rates.

Important

In 1988, The Economist featured Ireland in an article titled "The poorest of the rich." At the time, Ireland’s per capita GDP was $11,063, just 70% of the UK's and 52% of the U.S's. The unemployment rate was 16.2%, compared to 8.5% in Britain and 5.5% in the United States. Irish government debt amounted to 85% of GDP compared to 60% in the United States and 37% in the United Kingdom.

Additional reasons for the economic uptick include a rise in consumer spending, construction, and business investment; social partnerships among employers, government, and trade unions; increased participation by women in the labor force; long-term investment in domestic higher education; targeting of foreign direct investment; an English-speaking workforce; and membership in the European Union (EU), which provided transfer payments and export access to the Single Market. This boom ended in 2001, with the bursting of the Internet bubble.

A Second Boom

The second boom, in 2004, was largely the result of the country's decision to open its doors to workers from new EU member nations. A rise in housing prices, continued investment by multinational corporations (MNCs), growth in jobs and tourism, a revitalization of the information technology (IT) industry, and the United States’ own economic recovery all have been cited as contributing factors for Ireland’s 2004 comeback. But by mid-2007, in the wake of the growing global financial crisis, the Celtic Tiger had all but died.

How Many Houses Were Built During the Celtic Tiger?

At the height of the economic boom, in 2006, more than 90,000 dwelling units were constructed in Ireland.

Is Ireland in Financial Trouble?

The shutdowns required in the wake of the 2020 global crisis impacted Ireland's economy, and it is a concern when considering the country's future economic prospects.

During the economic shutdowns, parts of Ireland's economy continued to grow, while other parts were completely devastated; those sectors that remained largely open were not as badly damaged, but those that had to completely close their operations—and then faced a gradual reopening—may incur longer-term damage to companies and their employees.

In the third quarter of 2020, GDP rebounded by more than 11%, leading some economists to predict that this growth might offset any damages from the shutdowns at the beginning of 2020 (and even predicting that Ireland might experience overall gains in its GDP for the entire year). Growth in Ireland's economy can be attributed to multinational exports, driven mostly by the medical devices and the pharmaceutical industry, which benefited from the reopening of markets and normal medical activity internationally.

After the second shutdown in early 2021, lockdown restrictions began easing again, and vaccinations became more widespread. These trends bolstered economic activity; in May 2021, it was predicted that the Irish economy would rebound in the second half of 2021.

Is Ireland Richer Than England?

It depends on what measure of wealth you use to define how "rich" a country is. Some economists use the GDP PPP per capita as the best proxy for a country's true standard of living. GDP per capita (PPP-based) is gross domestic product converted to international dollars using purchasing power parity rates and divided by the total population.

The GDP PPP per capita in the United Kingdom was $41,627.13 in 2020. The GDP PPP per capita in Ireland was $89,688.96 in 2020. According to this measurement, Ireland is a richer country than the United Kingdom. However, Ireland has a smaller population, and these figures are reported for the whole of the U.K., not just England.

The Bottom Line

The Celtic Tiger period was a transformative era for Ireland, characterized by rapid economic growth from 1995 to 2007. This growth was driven by favorable tax policies, foreign investment, a skilled workforce, EU membership, and globalization efforts. The boom resulted in Ireland transitioning from one of Europe's poorest countries to one of its wealthiest. Although the global financial crisis of 2007 marked an end to this rapid expansion, the legacy of this period includes a robust infrastructure and a strong foundation for future economic policies. Despite recent economic challenges, Ireland's experience during the Celtic Tiger years provides valuable lessons about leveraging globalization, strategic investments, and policy reforms for economic development.