Stronger growth in the Republic’s economy has a positive “spillover” on the North’s economy. That’s according to a new economic model developed jointly by the Economic and Social Research Institute (ESRI) and its UK counterpart the National Institute of Economic and Social Research (NIESR).
Both think tanks, with the help of employers’ group Ibec, have developed a macroeconomic tool to assess the impact of shocks — negative and positive — on the North’s economy.
It found that a 2.5 per cent increase in consumption in the Republic over two years would result in a temporary boost to employment and consumption in the North, highlighting what it described as the “cross-Border dynamics between the two regions”. The change to demand in the Republic also led to an increase in Northern Ireland imports while private sector investment in the North remained largely unchanged.
A positive boost to exports in the Republic was also found to result in a positive boost to exports and imports in the North.
Another scenario examined a monetary policy shock, specifically an increase in the Bank of England interest rate. The simulation results suggested that the Northern Ireland economy is less sensitive to interest rate hikes than the wider UK.
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In another hypothetical scenario that is consistent with more devolution in Northern Ireland and where income tax rates are increased and where the additional funds are used to boost government spending and/or investment, there is, in both scenarios, a positive impact on the level of Northern Irish output.
“The newly developed model can provide key insights into the impacts of potential shocks and policy changes,” said the ESRI’s Adele Bergin.
“It provides a more joined-up framework that enhances the capacity to consider economic shocks and policy choices that impact Northern Ireland, Ireland, the all-island economy, the UK and the international economy,” she said.
Ibec chief executive Danny McCoy said: “From a business perspective, it has always been clear that the economies of both Northern Ireland and Ireland can positively and mutually influence each other by fostering improved economic outcomes.”
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