Celtic Tiger: Definition, History, and How Irish Economy Thrived

What Is Celtic Tiger?

Celtic Tiger is a nickname for Ireland during its boom years—between 1995 and 2007— when its economy was growing rapidly. The Irish economy grew at an average annual rate of 9.4% between 1995 and 2000, and between 1987 and 2007, Ireland’s GDP grew by 229%. Ireland had been one of Europe's poorest countries for more than two centuries prior to this period of rapid economic growth.

Understanding Celtic Tiger

The person credited with coining the name Celtic Tiger is Kevin Gardiner. Gardiner referred to Ireland as the Celtic Tiger in a 1994 investment report for Morgan Stanley about Ireland’s economy. The period of the Celtic Tiger has also been referred to as The Boom or Ireland’s Economic Miracle.

Why Tiger, and Why Celtic?

The tiger is a global symbol of power and energy; but this is especially true in Asia, where the tiger is linked power and might. The tiger is also associated with passion, ferocity, beauty, speed, cruelty, and wrath. The "Celtic" part of the nickname denotes Ireland as being one of the Celtic nations.

The term “Celtic Tiger” is a reference to the Four Asian Tigers, the nations of Singapore, Hong Kong, Taiwan, and South Korea, which underwent extremely rapid industrialization and economic growth rates in excess of 7% a year between the mid-1950s (for Hong Kong) and the early 1960s (for the other three countries). This rapid growth, which slowed in the 1990s, ultimately transformed these countries into developed, high-income countries, world-leading, international centers of finance, and leading manufacturers of electronics components and devices.

Causes of the Celtic Tiger

There are many cited root causes of the Celtic Tiger: low corporate taxes, low wages, U.S. economic boom, foreign investment, stable national economy, adequate budget policies, EU membership, and EU subsidies. Economists are still studying how much each of these factors contributed to Ireland's exceptional economic performance.

Foreign Investment

Ireland was able to attract foreign investment during this time period because of its membership in the EU. Many U.S. companies—including Dell, Intel, and Gateway—were persuaded by the Irish Development Authority (IDA) and other government organizations to move some of their operations to Ireland because of its EU membership, low tax rates, government grants, and well educated, English-speaking workforce.

The rapid economic growth during this same time period in the U.S., coupled with America's strong trade relationship with the EU, was a major contributor to Ireland's growth. Some U.S. companies still use Ireland as their home base for their European market operations.

Deregulation

In 1999, Ireland was ranked in the top three countries for economic openness by the Organisation for Economic Co-operation and Development (OECD). And compared to other countries in the EU, Ireland's government intervened minimally in the activities of corporations. As a result of this, it was able to attract more foreign investment.

The construction of the International Financial Services Centre in Dublin led to the creation of many high-value jobs in the accounting, legal, and financial management sectors. Finally, the EU's promotion of the liberalization of public utilities and transport resulted in cheap airfare to the country, leading to an increase in tourism.

Fiscal Policy

Ireland's corporate tax rate is among the lowest in Europe. There is some debate about what came first: some economists argue that Ireland’s status as a low tax economy was a product of the Celtic Tiger (and not its cause). Regardless, low taxes combined with macroeconomic and budget stability created high levels of investor confidence and an increase in private sector activity.

Social Partnership

Social Partnership refers to the tripartite, triennial national pay agreements reached in Ireland. The process began in 1987 to facilitate the difficult financial decisions necessary to put Ireland's economy back on track after high inflation, weak economic growth, increased emigration, unsustainable government borrowing, and national debt.

The public sector in the country was heavily unionized. Trade unions committed to wage moderation in return for the government's commitment to the welfare state. This commitment included income tax cuts and ongoing participation in economic decision-making through social partnership committees. The outcomes of these pay agreements are considered to be significant contributors to the Celtic Tiger because they contributed to a boom in public finances, ensuring macroeconomic and labor force stability.

Human Capital

Ireland's well-educated and skilled workforce allowed the country to attract long-term foreign direct investment. Since the 1960s, the country had invested important financial and human resources in education, particularly with the introduction of free secondary education and grants for third-level education.

This led to one of the best-educated workforces in Europe by the 1990s. And having an English-speaking also helped the country supply well-qualified entrants to the labor market. In fact, many people who left the country in the 1980s returned back to Ireland during the boom, and ultimately, powered the massive increases in productivity through the 1990s.

European Structural and Cohesion Funds

Since joining the EU in 1973, Ireland has had lucrative access to markets that it had previously reached only through the United Kingdom.

In addition, the EU has pumped huge subsidies and investment capital into the Irish economy. These funds have been crucial to Ireland’s development through its investment in transport infrastructures, education, training, and industry.

Small Size

The majority of the richest European countries are small. This is because it is easier to achieve good governance and social consensus in a small country.

Peace

The peace process in Northern Ireland and the Good Friday Agreement of 1998 contributed to Ireland's image abroad. It also contributed to a stable operating and political environment; the government could shift its focus from security to economic development.

Governance

Over the course of many decades, the Irish government took a positive and active approach to the development of business by investing in human capital and trying to attract foreign direct investment, including a strong program of marketing Ireland as an investment location. This approach led to a strong infrastructure in banking, finance, telecommunications, and logistics.

Globalization

Ireland is one of the most globalized economies on the planet, due to decades of state protectionism and successive economic failures. At first, Irish people left the country to go work in other countries for foreign firms. Now, many foreign firms are located in Ireland. In this way, Ireland harnessed economic globalization for the benefit of its own citizens, in order to improve the welfare state.

History of Celtic Tiger

Miraculously, Ireland jumped from being one of the poorest countries in Europe to one of the richest in only a matter of years. Ireland’s first boom was in the late 1990s when investors (including many tech firms) poured in, drawn by the country's favorable tax rates.

Additional reasons for the economic uptick include a rise in consumer spending, construction, and business investment; social partnerships among employers, government, and trade unions; increased participation by women in the labor force; long-term investment in domestic higher education; targeting of foreign direct investment; an English-speaking workforce; and membership in the European Union (EU), which provided transfer payments and export access to the Single Market. This boom ended in 2001, with the bursting of the Internet bubble.

A Second Boom

The second boom, in 2004, was largely the result of the country's decision to open its doors to workers from new EU member nations. A rise in housing prices, continued investment by multinational corporations (MNCs), growth in jobs and tourism, a revitalization of the information technology (IT) industry, and the United States’ own economic recovery all have been cited as contributing factors for Ireland’s 2004 comeback. But by mid-2007, in the wake of the growing global financial crisis, the Celtic Tiger had all but died.

Celtic Tiger FAQs

How Many Houses Were Built During the Celtic Tiger?

At the height of the economic boom, in 2006, more than 90,000 dwelling units were constructed in Ireland.

Is Ireland in Financial Trouble?

The shutdowns required in the wake of the 2020 global crisis impacted Ireland's economy, and it is a concern when considering the country's future economic prospects.

During the economic shutdowns, parts of Ireland's economy continued to grow, while other parts were completely devastated; those sectors that remained largely open were not as badly damaged, but those that had to completely close their operations—and then faced a gradual reopening—may incur longer-term damage to companies and their employees.

In the third quarter of 2020, GDP rebounded by more than 11%, leading some economists to predict that this growth might offset any damages from the shutdowns at the beginning of 2020 (and even predicting that Ireland might experience overall gains in its GDP for the entire year). Growth in Ireland's economy can be attributed to multinational exports, driven mostly by the medical devices and the pharmaceutical industry, which benefited from the reopening of markets and normal medical activity internationally.

After the second shutdown in early 2021, lockdown restrictions began easing again and vaccinations became more widespread. These trends bolstered economic activity; in May 2021, it was predicted that the Irish economy would rebound in the second half of 2021.

Is Ireland Richer Than England?

It depends on what measure of wealth you use to define how "rich" a country is. Some economists use the GDP PPP per capita as the best proxy for a country's true standard of living. GDP per capita (PPP-based) is gross domestic product converted to international dollars using purchasing power parity rates and divided by the total population. 

The GDP PPP per capita in the United Kingdom was $41,627.13 in 2020. The GDP PPP per capita in Ireland was $89,688.96 in 2020. According to this measurement, Ireland is a richer country than the United Kingdom. However, Ireland has a smaller population, and these figures are reported for the whole of the U.K., not just England.