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Boosting Competitiveness to Grow Out of Debt

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  • Mwanza Nkusu
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    Abstract

    This paper investigates the prospects for Ireland to grow its economy against the backdrop of high indebtedness. The paper uses vector autoregressive analysis to explore the interlinkages among competitiveness, exports, economic growth, and fiscal performance. The emerging conclusion is that Ireland, which has regained cost competitiveness following the crisis-driven fall in domestic prices, is poised to return to its path of strong exports and economic growth and lower imbalances provided that it maintains competitiveness, though a pickup in external demand is critical. Three main findings underpin this conclusion. First, external demand is an important driver of exports and also the single most important determinant of Ireland’s GDP and government revenue. Second, declines in price competitiveness, featured by real effective exchange rate (REER) appreciations, restrain exports and economic growth. Third, exports boost output, which in turn enhances fiscal performance.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/35.

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    Length: 35
    Date of creation: 01 Feb 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/35

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    Related research

    Keywords: Global competitiveness; Ireland; Public debt; Economic growth; Foreign direct investment; Economic models; Forecasting; financial crises; economywide country studies.; reer; exports of goods; export growth; pre-crisis; net exports; total exports; global economic recovery; real effective exchange rate; global financial crisis; debt crisis; real exports; export potential; export competitiveness; export performance; trade flows; increasing exports; crisis situation; export sectors; balance sheets; banking crisis; post-crisis growth; post-crisis period; banking crises;

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
    2. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
    3. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
    4. Daniela Federici & Daniela Marconi, 2001. "On exports and economic growth: the case of Italy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(3), pages 323-340.
    5. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
    6. Daniel Kanda, 2008. "Spillovers to Ireland," IMF Working Papers 08/2, International Monetary Fund.
    7. Birmingham, Colin & Conefrey, Thomas, 2011. "The Irish Macroeconomic Response to an External Shock with an Application to Stress Testing," Research Technical Papers 10/RT/11, Central Bank of Ireland.
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