Financial Liberalisation and Economic Growth in Ireland

John Kelly and Mary Everett
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John Kelly: Central Bank of Ireland
Mary Everett: Central Bank of Ireland

Quarterly Bulletin Articles, 2004, 91-112

Abstract: Numerous theories have been advanced to explain Ireland s exceptional growth experience during the Celtic Tiger era. Many of these have concentrated on structural developments in the labour market and the contribution of a plentiful supply of labour to this growth. The role of other factors, such as finance, by contrast, has received little attention. Development economists have long stressed the positive relationship between financial liberalisation and growth. This article reviews financial liberalisation in Ireland and the structural changes which affected both the supply of and demand for credit. Starting with the balance of payments, the financial flows which facilitated the very rapid expansion of privatesector credit from 1994 onwards are examined. These flows are then related to the banks funding position and the bridging of the gap between loan and deposit growth over the 1994 to 1998 period. This analysis reveals a predominant reliance on external sources of finance and an increasingly globalised banking sector. Finally, further insights into the contribution of bank credit to the growth experience are obtained from a sectoral study of credit growth. Interestingly, those sectors where credit expanded most rapidly also enjoyed above-average employment growth.

Date: 2004-10
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:qtbart:y:2004:m:10:p:91-112

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