Real GDP in Ireland

Four years ago I published a paper [1] introducing the concept of constant annual increment in real GDP per capita, G, as observed in developed countries. In the long run, the GDP growth as a linear function of time:

G(t-t₀)= G₀+B(t-t₀)

where G₀ is the initial level of GDP per capita at time t₀ in a given country, B is the country dependent increment measured in dollars. Therefore, the rate of growth of real GDP per capita, dG/G, has a decelerating trend:

dG/G = B/G

This assumption gives excellent statistical results and explains the evolution of real GDP per capita in developed countries, as also was confirmed in our 2008 paper [2].

In 2004, when the first results were obtained, there were few countries which demonstrated lager deviations from the constant increment model. The worst example was Ireland, which had demonstrated an outstanding performance in the 1990s and the beginning of the 2000s. Five years ago, I wrote

An opposite example of an excellent recovery gives Ireland with corresponding results displayed in Figure 11. A slow start was quickly compensated and the last twenty years of an extremely fast growth resulted in the leading position in the world economy with the mean increment $678. There are some doubts, however, that future will be so successful. Such a long and quick growth always ends up in a depression. This was observed in Japan and is related to the long-term decrease in the number of the specific age population [Kitov, 2005a]. Ireland has managed to increase birth rate for a very long period and has an age structure similar to that observed in Japan 20 years ago. The population distribution is currently peaked near 20 years with the defining age of 18 years. The years to come will demonstrate only decrease in the defining age population.

Fig. 11. Same as in Figure 4 for Ireland. The mean value is $678. The growth of the real GDP per capita is outstanding during the last twenty years. There is a downward tendency during the last four years, however.

So, we put the progress of the Irish economy under doubt. The reason was its similarity to the Japanese case and the underlying model of real GDP growth, which includes population of a country specific age. Neglecting fluctuations induced by the population change, we now depict the same Figure with six new readings between 2004 and 2009.

Figure. The increment of real GDP per capita vs. real GDP per capita in Ireland. As before, all data are borrowed from the Conference Board data base (http://www.conference-board.org/economics/database.cfm).

The slope of +0.06, observed between 1950 and 2003, now has reduced to 0.027, i.e. by a factor of 2. The near future of the Irish GDP per capita is under question as well: it will likely to decrease as in 2008 and 2009. We will keep reporting on the case of Ireland, but is does not represent an exclusion to our approach with constant increment. Ireland provides a higher volatility in the GDP growth, which is driven by the weird population pyramids with a strong peak at one age. Same shape is observed in Japan, but the peak age is 25 years larger.

References

[1] Kitov, I., (2006). Real GDP per capita in developed countries, MPRA Paper 2738, University Library of Munich, Germany, http://ideas.repec.org/p/pra/mprapa/2738.html

http://mpra.ub.uni-muenchen.de/2738/01/MPRA_paper_2738.pdf

[2] Kitov, I., (2009). The Evolution of Real GDP Per Capita in Developed Countries, Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. IV(1(8)_ Summ), pp. 221-234.