After catch-up

The Economist’s bloggers have a piece on China today which is relevant to Ireland. They ask what happens to an economy’s growth rate, in the long run, once it has caught up to the technological frontier. Their answer, correctly, is that “Historically speaking, the answer is clear—growth slows to 2-3% per year.”

This is a point which Cormac Ó Gráda and I made in a textbook chapter on long run Irish growth a decade ago. Very high growth rates characterise economies catching up to the frontier — Western Europe or Japan in the 1950s and 1960s, the Asian Tigers in the 1960s and 1970s, ourselves in the 1990s. Once you have caught up, 2-3% per annum is about as good as it gets. Allowing a bubble to inflate can obscure this reality over the short to medium run, but in the long run you won’t manage to grow more rapidly than the United States has done over the past century or so: to do so is a sign of an economy that is still in some sense backward.

These are relevant considerations when thinking about what sort of growth rates Ireland can reasonably be expected to achieve over the next decade or two.