Ireland’s export competitiveness: myths and facts – a 3-part study by Proinnsias Breathnach

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Over on Ireland After NAMA Proinnsias Breathnach has provided the final instalment of his highly informative three part study of Ireland’s export competitiveness. He also provides a summary of the points in each paper and conclusions reached, which gives the gist in case you don’t have time to read all of them. I’ve added this below the links.

Ireland’s export competitiveness: myths and facts – Part 1: The loss of competitiveness myth

Ireland’s export competitiveness: myths and facts – Part 2: Myths relating to the role of labour costs in export competitiveness

Ireland’s export competitiveness: myths and facts – Part 3: Alternative approaches to the measurement of export competitiveness

In Part 1 of this paper, data were presented which contradicted the widely-held view that Ireland experienced a sharp loss of export competitiveness vis-à-vis its main trading partners over the period 2000-2007. Ireland actually increased its share of total world exports (albeit marginally) in this period and did better in this respect than seven of Ireland’s twelve main trading partners. In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of the paper showed that, while economy-wide unit labour costs in Ireland rose more rapidly than in Ireland’s main trading partners in the period 2000-2007, this did not have the negative impact on Ireland’s export competitiveness which has bee postulated by economic commentators because unit labour costs in both the export manufacturing and export services sectors moved in the opposite direction. While this was associated with a rapid rise in services exports (and might have been in the case of manufacturing exports were it not for the intrusion of several extraneous factors which had a particularly negative impact on Ireland’s merchandise exports), this should not be construed as establishing a causal link between trends in labour costs and trends in export performance. An examination of the cost structure of Ireland’s main manufacturing export sectors revealed that not only was there was no link between the proportion of total costs accounted for by labour costs and employment change in these sectors, but that labour costs in general account for a low proportion of costs in the sectors in question (as is also the case with export services).

The third and final part of this paper reviews a number of alternative approaches to assessing national export competitiveness which are much more complex and sophisticated than the simplistic – and erroneous – reduction of competitiveness to international differences in unit labour costs. These alternative approaches generally portray Ireland’s competitiveness position in a much more favourable light than has become the norm in public discourse of the topic in Ireland. The paper then raises the possibility that the application of any kind of competitiveness measures to Ireland may be futile due to the high proportion of Irish exports which go into non-competitive markets. The paper concludes by contrasting the calls by leading foreign industrialists for greater investment in productivity-enhancing education and research & development as the key to enhancing Ireland’s future competitiveness with the narrow preoccupation of Irish economic commentators with labour cost reduction. Given the influence these commentators have in the policy-making arena, this preoccupation, and associated government spending cuts, could do profound long-term damage to Ireland’s ability to compete in the high-value-added export markets which are essential if Ireland is to sustain its position as a high-income economy.

 

One Response

  1. Rob

    May 30, 2010 11:47 pm

    Can then, anyone explain to me why it is, that all we hear from the mainstream media, (RTE of course), the government spin doctors and all the main political parties icluding the Labour Party, (which is not really the ‘Labor Party’) and Patrica Callan, that Ireland is no longer competitive and that wages must be cut (if you are lucky enough to have a job that is)???