Living standards in Northern Ireland were around one-fifth above the Republic in the mid-1990s and, while the gap may continue to narrow, the Republic is unlikely to overtake the North before 2005 at the earliest, according to economist Dr Esmond Birnie.
In a chapter of a new book, The Northern Ireland Question, edited by Paddy Roche and Brian Barton, UUP assembly member and academic economist Dr Birnie argues that many of the measures of the Republic's growth in the 1990s could in fact be inaccurate, with transfer pricing by multinationals (to avoid high taxation) exaggerating the level of growth of GDP (GNP is only 86.7 per cent of GDP) and of output per worker or productivity. He says that in indigenous industries, which cannot take advantage of transfer pricing, the Republic remains a low-productivity economy.
The most likely scenario, he argues, is that the current period of strong growth in the Republic ends, so that GNP per capita stabilises at levels roughly equal to the UK and EU averages in 2005-2010. While GNP per head in Ireland was above that in the North in the mid-1990s, higher public spending and lower taxes in the North left living standards there higher, he argues, with the Republic's not likely to catch up for some years.
Mr Birnie, who is a former Queen's University economist and author or co-author of over forty books and articles on the Irish economies, also assesses both unionist and nationalist views on the economy.
Referring to the subvention of the Northern economy from the UK exchequer, he says that the unionist view of this may be that it is simply a result of common tax and spending policies across the UK. Use of the subvention as a "figleaf" to defend the continuation of the union "might become a liability to the extent that it was perceived that this indicated economic weakness".
However, he argues that unionists have the option of arguing that the union is still best economically as it "guarantees stable access to a national economic and monetary union of 57 million people. In contrast, all-Ireland arrangements will, at best, provide an economy of only 5.3 milion persons."
Turning to nationalists, he argues that the existence and scale of the subvention "may pose much more of a problem for those who would argue for a united Ireland". A range of responses among nationalists range from "don't pay it as the North has no right to it", to the argument that increased economic dynamism from a united Ireland would make it unnecessary. However, Dr Birnie argues strongly against this view, seeing very limited benefits from economic integration and arguing that most useful links could be formed between companies "without any institutional structure."
In this context, he sees little benefit from the development of cross-border bodies such as those proposed in the Belfast Agreement, arguing that competing interests between the North and the Republic in areas such as tourism and inward investment would make joint policy-making difficult.
He also questions whether any genuine economies of scale could be achieved by greater cross-border co-operation or the "island economy" model put forward by Sir George Quigley, the Ulster Bank chairman, saying they would not be significant in joining an economy with 1.6 million people to one with 3.7 million inhabitants.
