Productivity and income per capita convergence in a peripheral European economy: The Irish experience

GDP per capita in Ireland increased from 60% to 90% of the UK average during 1986-95. This extremely rapid convergence begs the question whether increases in comparative productivity were of a similar magnitude. Industry of origin comparisons were used to benchmark Ireland/UK labour productivity in 1935, 1968 and 1985. Dramatic improvement in manufacturing comparative productivity was the immediate explanation of much of the convergence in GDP per capital levels. Unadjusted manufacturing productivity in the mid 1990s was as high as that in the US. This was prima facie evidence of transfer pricing. The likely scale of distortion created by transfer pricing is discussed and hence the extent of exaggeration of GDP. An agenda for further research was suggested.