Introduction
Gross domestic product (GDP) and Gross National Product (GNP) is the indicators of the general economic condition of a country. These indicators give a description of the general economic and financial welfare of the nation, because the higher the level of production means higher level of the country's well-being. The subject of the study of the GDP and GNP is economic units - residents, producing goods and services for the end-user over a certain period of time (Investopedia, 2003).
The indicator of GDP and GNP are very important for the economy as a whole. They are used to describe the results of production, the level of economic development, economic growth, productivity analysis in the economy and so on. Gross domestic product (GDP) is the central component of the system of national accounts (SNA), which characterizes the value of final goods and services produced by residents of the country for a given period. GDP is calculated in market prices of final consumption or in the prices paid by the purchaser, including all trades - transport margins and taxes on products. GDP is used to describe the results of production, the level of economic development, economic growth, productivity analysis in the economy and so on (Publications.gc.ca, 2016).
Theory
Before proceeding to the characterization of Ireland GDP as a measure of welfare, it is necessary to focus on the key points in the concept of this index. First of all, GDP is a measure of the manufactured product, which is the value of final goods and services produced. This means that the cost of intermediate goods and services used in the production process (such as raw materials, fuel, energy, seeds, food, services, freight transport, wholesale trade, business and financial services, and so on) is not included in GDP. Otherwise, GDP would contain double counting. The final products are goods and services that are purchased by consumers for final use and not for resale. Intermediate goods are goods and services that are further processed or resold several times before you get to the end consumer.
In order to properly calculate the total volume of production, it is necessary that all the products and services produced in a given year, have been taken into account once, and no more. Most products tested several production stages before placed on the market. As a result, parts and components of most products are bought and sold several times. Thus, in order to avoid multiple registration of parts of products that are sold and resold, in the calculation of GDP is taken into account only the market value of final products and intermediate products are excluded.
GDP and GNP as a Measure of the Economy of Ireland
The term "Celtic Tiger" was used in the pre-crisis time (since the early 1990s to 2008) to the description of Ireland's economy (The Heritage Foundation, 2006). From 1996 to 2007 the country's GDP grew by an average of 7.1% per year, which exceeded not only the world total (3.2%), but also the growth rate of fast-growing Asian countries (4.3%).
Most of the existing growth theories cannot explain such a powerful growth of the Irish economy. Among the factors contributing to the "Celtic economic miracle", we can point out the following:
Accession to the European Union and the Euro Zone;
Investment in information technology, telecommunications, healthcare and pharmaceuticals, international financial services, software products development and e-commerce;
Investments in education;
Reform of the labor market and the tax system (by the year 2002 the tax rate for all companies reached 12.5%, which meant a drastic reduction for local companies);
Investment from the United States (including the Irish-Americans).
Until 2007, the economy "Celtic Tiger" was rapidly developing, especially the information technology sector (for electronics accounted for 25%), has shifted from agriculture to industry, but here in the US mortgage crisis occurred, which led to a significant economic shocks in the world. Investors decide to withdraw money from the Emerald Isle. However, in 2008, in Ireland there was a catastrophic decline (collapse) of property prices. The building boom has ended with collapse: the prices have dropped by 50% -60%.
In early 2007, property prices in Ireland and other countries reached an upper limit. The collapse of prices in 2008 caused a backlash. Banks were the owners of impaired mortgages and doubtful loans, the population that had taken credits, has lost the ability to pay them. In addition, the population got even more debt, the country received a large shortfall in its budget. The dynamic development has turned into catastrophic crisis. After these events, there was a predictable fall in GDP by 3% in 2009, then by 7% in 2009.
Ireland's gross domestic product amounted to 172.5 billion dollars in 2009, which is 7.1% lower in relation to the level of 2008. GDP per capita was approximately 38.7 thousand dollars (2009). The fall in these rates is the result of the economic crisis in 2008-2009, which severely damaged the banking and financial system in Ireland, the real estate market and the country's budget.
However, membership in the EU has a positive effect on the economic development of the country, which receives about a quarter of the direct investments from the US business. In a country with traditionally high unemployment, there was a sharp rise in employment due to the low tax rate, the low level of wages and highly skilled workers. Ireland is one of the founders of the European Economic Union and the European Monetary Union. The most developed industries are food processing, brewing, chemical, pharmaceutical, textile, mechanical industries, engineering and the manufacture of glass and crystal. The active growth is in the information technology sector. Ireland has one of the most advanced communications systems in Europe.
Given the information mentioned above, it is possible to conclude, that the GNP is a quite good measure of the national welfare in Ireland. However, there are some disadvantages of this measure. In assessing the public welfare in Ireland, the disadvantages of gross national product is that it does not take into account:
non-market production;
The value of goods and services created by the shadow (illegal) economy;
It also does not reflect:
The distribution of national income between consumption and accumulation of various segments of the population;
Working time and rest time (GNP personal expenses);
non-economic factors (environmental pollution, etc).
Therefore, sometimes, for the calculation of social welfare, it is better to use such indicators as gross domestic product, net national product and national income.
How the UK’s Potential Exit from Eurozone may affect Ireland?
Introduction
The first research dedicated to the consequences of a possible withdrawal of Britain from the European Union, was published more than five years ago. The authors of this research named “Better Off Out?”, scientist-economist and consultant Brian Hindley and lawyer Martin Howe, have recently presented a new edition of their work to the public (Iea.org.uk, 2016).
At first glance it might seem that in the conditions of the general concern about the fight against terrorism, the work of Hindley and Howe will be left unnoticed. However, by a happy coincidence for authors, the publishing of their work coincided with a speech by British Prime Minister Tony Blair's on the Labour Party conference. During this conference, he made a sensational statement concerning the relations of the UK and the EU.
Theory
According to Blair, the terrorist attacks on the United States demonstrated the immense value of the community. For Britain, this "community", among other things, is also means a deepening of relations with other EU countries. Thus, according to Blair, the beginning of full-scale war against terrorism underlines the importance of London's entry into the Eurozone.
This somewhat surprising finding has caused controversy, because until recent time the authorities strenuously deny the fact that EU membership brings not only economic, but also political benefits. Thus, the new position of prime minister Blair is consonant with the conclusions of Hindley and Howe. Their study shows that politics is the main reason causing the importance of EU membership for the UK. According to scientists, the economic impact (positive or negative) in any case is still too low.
A thorough analysis of the costs and benefits of the EU membership for the UK, shows that the economic effect of it does not exceed 1% of its GDP. First, the exit from the Union and automatic refusal to follow the requirements of the EU agricultural policy will allow to save the UK from 0.5% to 1% of its GDP. Next, the introduction of customs tariffs on British exports to other European countries in the case London's exit from the EU in any case, will not exceed 0.75% of the GDP of Great Britain. Such an insignificant value is explained by the fact that in accordance with the requirements of the World Trade Organization, the average import tariffs to the EU do not exceed 6%. Furthermore, the potential for loss of London in this case will soften to a certain extent due to subsequent correction in exchange rates and range of exports.
Another argument in favor of the abolition of exit can be accepted in the EU import tariff on goods entering the Union from outside. In turn, the last argument in defense of the positions of eurooptimists is a possible reduction in foreign direct investment as a result of the termination of membership of Great Britain in the EU.
The results of Hindley and Howe in the analysis of the three originally considered factors are quite obvious and have never been challenged by their critics. However, the latter factor, a possible reduction in foreign direct investment, causes great concern in many people. Indeed, from the point of view of foreign investors, the UK membership in the Union should look like an advantage. But it is clear that this situation is not a major when making capital investment decisions: otherwise the UK would not attract more investment than its neighbors in the EU. In reality, the situation is the case: capital owned by foreigners in the United Kingdom, correspond to 25% of its GDP. This can be partly explained by the device of the British labor market is more flexible than in other European countries.
Of course, the cessation of the UK's membership of the EU can cause some reduction of its investment attractiveness. The products exported to other European countries, after the exit from the Union will be a subject to customs tariffs, while their exporters will face the local bureaucracy. However, it will not destroy the British investment appeal. Moreover, the consequences of this step will be able to minimize as much as possible if London realizes the benefits that will be provided by the newfound independence in decision-making – in particular, by improving the efficiency of its regulatory legislation in comparison with the pan-European. In this case, foreign direct investment may not be reduced, they may even increase.
Also, the researchers note that the reduction of volumes of foreign direct investment is not necessarily a negative impact on the condition of the British economy. Like other countries, the United Kingdom subsidized foreign direct investment, seeking to realize the related so-called "indirect benefits", which means the stimulation of domestic demand, imports of new technologies or management practices. However, according to the study authors, the real positive effect of these "indirect benefits" for the UK is not obvious and it is not enough to keep the foreign investors in the country due to government subsidies.
In addition, the possibility of free trade agreement Great Britain and the European Union is a favorable factor for exit from the EU. Such trade agreement has been already signed with Switzerland. In this case, the potential benefits from the termination of the membership in the EU will increase. The potential losses will be reduced. In turn, the United Kingdom will be able to enter into similar agreements with other countries or simply alleviate its trade regime unilaterally. In other words, a possible exit of the UK from the EU does not come even close to the definition of "economic suicide", as eurooptimists have hastened to call this. The main reason for holding the London in Union is still politics.
The Impact of Possible Exit on Ireland
In my opinion, if the United Kingdom will exit from the European Union, it will adversely affect the agricultural and food sector in Ireland. The Economic and Social Research Institute of Ireland has made a report on the possible economic issues related to the decision of the UK government.
In the UK, the Government intends to hold a referendum on EU membership. The Economic and Social Research Institute of Ireland experts studied the economic relationships between Ireland and the UK and the potential economic consequences for Ireland after the “victory” of the United Kingdom. The “Brexit” report indicates the great reduction in the bilateral trade flows between the UK and Ireland. According to experts, the trade exchange could be reduced by 20% (on average) or even more. Experts believe that such sectors as food and beverages, metals and agriculture are relatively more dependent on exports to the UK. Hence, the impact on them will be more serious (Moran, 2015).
References
Iea.org.uk. (2016). Better Off Out? The Benefits or Costs of EU Membership. [online] Available at: http://www.iea.org.uk/publications/research/better-out-the-benefits-or-costs-of-eu-membership [Accessed 4 Apr. 2016].
Investopedia. (2003). Gross Domestic Product (GDP) Definition | Investopedia. [online] Available at: http://www.investopedia.com/terms/g/gdp.asp [Accessed 4 Apr. 2016].
Investopedia. (2003). Gross National Product (GNP) Definition | Investopedia. [online] Available at: http://www.investopedia.com/terms/g/gnp.asp [Accessed 4 Apr. 2016].
The Heritage Foundation. (2006). How Ireland Became the Celtic Tiger. [online] Available at: http://www.heritage.org/research/reports/2006/06/how-ireland-became-the-celtic-tiger [Accessed 4 Apr. 2016].
Moran, C. (2015). Report says if the UK leaves the EU it won't be good news for farmers - Agriland. [online] Agriland. Available at: https://www.agriland.ie/farming-news/report-says-if-the-uk-leaves-the-eu-it-wont-be-good-news-for-farmers/ [Accessed 4 Apr. 2016].
Publications.gc.ca. (2016). The Gross Domestic Product and Alternative Economic and Social Indicators (PRB00-22E). [online] Available at: http://publications.gc.ca/Collection-R/LoPBdP/BP/prb0022-e.htm [Accessed 4 Apr. 2016].
