• Corpus ID: 32878639

A Tale of Two Clusters: The Evolution of Ireland's Economic Complexity since 1995

@article{OClery2016ATO,
  title={A Tale of Two Clusters: The Evolution of Ireland's Economic Complexity since 1995},
  author={Neave O’Clery},
  journal={Journal of the Statistical and Social Inquiry Society of Ireland},
  year={2016},
  volume={45},
  pages={16}
}

• N. O’Clery
• Published 2016
• Economics
• Journal of the Statistical and Social Inquiry Society of Ireland

Abstract This paper characterizes the evolution of the manufacturing and industrial export structure of Ireland since 1995 within the framework of Economic Complexity and the Product Space. We observe a high level of specialisation in Ireland's export structure, coupled with high income per capita as compared to the complexity level of its industrial activities (as captured by its Economic Complexity Index). We identify a dual structure within the economy, with domestic and foreign-owned exporters exhibiting distinct characteristics. In the latter case, we observe a recent consolidation and reduction in complexity level by the foreign-owned high tech pharmaceuticals and electronics sectors, with limited evidence of spill-overs leading to growth of domestic firms in these sectors. This contrasts with a dynamic and growing domestic food and agriculture sector, which is well positioned for continued expansion of Ireland's indigenous activities into more complex goods. Finally, we illustrate this framework as a tool for policy-makers by identifying some potential new sectors that share many inputs with Ireland's current domestic capability base, and could increase Ireland's complexity level for future growth. Keywords: manufacturing, exports, Ireland JELs: L16, L60, O14 1. WHY DO COUNTRIES GROW? Building on classical theories which focus on the relative contributions of capital, labour and technology to economic growth (1 2 3) recent work has proposed that countries grow by expanding their knowledge and capability base, enabling them to diversify into new industries and economic activities. (4 5 6 7) The specific capabilities and inputs available to a country determine the set of 'nearby' or likely new industries, and govern its diversification. While classical trade theory suggests that current industrial make-up has little to no effect on future structure, new research provides strong signals that the capabilities or skills a country has today affect its industrial path in the future. (8) In order to describe this process, the Economic Complexity framework employs the Product Space, (4 5 6 7) a network that models the process of industrial diversification of an economy. The Product Space is based on the intuitive idea that a country that exports fabrics is more likely to next export garments than it is to export jet engines. Metrics derived from the structure of the network, such as the Economic Complexity Index (ECI), which ranks countries by the knowledge accumulated via production in their economies, have been shown to rival alternative predictors for industrial growth such as education and quality of institutions. (7) This paper characterizes the evolution of the manufacturing and industrial export structure of Ireland since 1995 within the framework of Economic Complexity and the Product Space. We observe a high level of specialisation in Ireland's export structure, coupled with high income per capita as compared to the complexity level of its industrial activities (as captured by its Economic Complexity Index). We identify a dual structure within the economy, with domestic and foreign-owned exporters exhibiting distinct characteristics. In the latter case, we observe a recent consolidation and reduction in complexity level by the foreign-owned high tech pharmaceuticals and electronics sectors, with limited evidence of spill-overs leading to growth of domestic firms in these sectors. This contrasts with a dynamic and growing domestic food and agriculture sector, which is well positioned for continued expansion of Ireland's indigenous activities into more complex goods. Finally, we illustrate this framework as a tool for policy-makers by identifying some potential new sectors that share many inputs with Ireland's current domestic capability base, and could increase Ireland's complexity level for future growth. 2. CONTEXT: AN ECONOMIC RECOVERY DEPENDANT ON EXPORTS Ireland is a country in recovery. …