ECONOMICS:   The most popular mono-causal explanation for the Republic's economic boom of recent years is summed up by the word "demographics".

Over the period 1993-2001, total employment expanded at an annual average rate of 4.5 per cent - the result of annual labour force growth of 2.7 per cent and a fall in the unemployment rate from 15.7 per cent to about 4 per cent.

This, together with crudely measured productivity growth of 4 per cent per annum, produced an average annual increase in GDP of almost 9 per cent.

This "demographic" view of the world is very useful but its usefulness is principally as a means of accounting for growth rather than explaining why the rapid growth took place. (In much the same way as a profit and loss statement accounts for a company's performance but doesn't explain why it has been so profitable.)

For one thing, a significant proportion of the increase in the Irish labour force that has occurred over the past decade or so has been endogenous. This is most obviously the case in respect of migration flows: people who might otherwise have chosen to emigrate have chosen instead to remain in the Republic precisely because of the economy's greatly improved performance.

Likewise, people who might otherwise have chosen to continue living abroad, have moved back to the Republic.

It is also true of the rise in labour force participation rates: people, women particularly, who might otherwise have elected to remain outside the labour force, have decided to seek employment, precisely because of the tremendous increase in employment opportunities.

The problem with the "demographic" view of the Irish economy is that it treats an increase in the labour force as a given, that is as something that is determined outside the economic realm rather than something that is heavily influenced by economic performance. This is, incidentally, one of several respects in which assumptions that may be appropriate to the analysis of other, larger and relatively closed economies are inappropriate to analysis of the Republic.

But there is another shortcoming of the "demographic" school of thought. It is that, insofar as it identifies the economy's potential growth rate - a more than averagely elusive concept in the case of the Republic - it doesn't explain why the economy managed to achieve that potential in recent years, when it patently fell well short of its potential in previous periods.

In other words, while the "demographic" approach can demonstrate the contribution that declining unemployment made to GDP growth between 1993 and 2001, it cannot begin to explain why the unemployment rate was almost 16 per cent in 1993 and only 4 per cent last year.

From an analytical point of view, the demographic approach begs as many questions as it answers. However, the greatest problem of all with the "demographic" approach, is that it encourages a deterministic view of the country's economic prospects.

It is not such a big step from representing demographics as the main cause of the recent episode of rapid economic growth to believing that the economy's performance in the period ahead will be entirely shaped by demographic factors.

Approached in this way, it is all too easy to be seduced into the belief that the next decade or so will be just a slightly paler version of the one just past, the only material differences between the two periods being a slower rate of labour force growth and a much lower starting point for the unemployment rate. This deterministic framework invites the inference that neither the international environment nor domestic economic policy matters much.

To fall into that habit of thinking would be disastrous. As far as the external environment is concerned, the Republic's performance during the 1990s cannot be understood without reference to key developments in the international economy: the unusually vigorous growth in the US, the boom in the global ICT sector and the associated flows of foreign direct investment (FDI), and the creation of the Single European Market, to name the most important.

Another key feature of the external environment in the late 1990s was the dramatic depreciation of the Irish pound. Between end-1996 and end-2000, the Irish currency fell by 15 per cent on a trade-weighted basis, thereby imparting a sizeable boost to the competitiveness of Irish producers.

Looking ahead, the least that can be said is that we are most unlikely to be blessed with such a favourable group of developments.

Of particular concern is the prospect of the Republic facing much more intense competition from other European locations for FDI flows, the possibility that such FDI flows will be a good deal lower than in the past on account of a less dynamic global ICT sector, and the risk that existing Irish producers will lose competitiveness because of large adverse swings in exchange rates.

Equally, the Republic's economic performance over the past decade or so cannot be understood without reference to domestic economic policy decisions and big changes in policy-determined variables. Here, much play has been made of the contribution of big policy initiatives that date back to the 1960s and 1970s, such as the expansion of second- and third-level education and the opening up of the economy to trade and foreign direct investment.

However, while such initiatives undoubtedly boosted the economy's long-term growth potential, they do not offer much illumination of the extraordinary contrast between the abject performance of the 1980-1986 period and the stellar performance of the 1990s.

Rather more illumination of this issue may be provided by looking at the changing state of the public finances.

Jim O'Leary is lecturing in the Department of Economics at the University of Maynooth.