ESRI TCD Joint Conference

28/10/2010

ESRI - TCD Conference "Turning Globalisation to National Advantage: Economic Policy Lessons from Ireland's Experience"

The ESRI and TCD will be holding a joint Conference entitled  "Turning Globalisation to National Advantage: Economic Policy Lessons from Ireland's Experience" o n Thursday 28 October 2010, from 13.30 to 17.30, at the ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2. This ESRI-TCD Conference is a joint initiative under the recently agreed New Strategic Partnership between the ESRI and TCD. It will discuss preliminary research results and implications for policy from two major ongoing projects being carried out by researchers at ESRI and TCD. These projects are funded by the Irish Research Council for the Humanities and the Social Sciences (IRCHSS) and focus on the effects of globalisation on the Irish economy and related policy responses.

The Programme is as follows: 13:30-13:55 Registration (Tea and Coffee will be served) 13:55-14:00 Welcome and Opening Frances Ruane, Director ESRI. Session 1: International Macroeconomics

Chair: Iulia Siedschlag, ESRI and Department of Economics, Trinity College Dublin. 14:00-14:30 Euro Membership and Bank Stability: Friends or Foes?

Patrick Honohan, Governor, Central Bank of Ireland. 14:30-15:00 Irish Macroeconomic Policy under EMU

Philip Lane, Department of Economics, Trinity College Dublin. 15:00-15:30 Labour Market and Potential Output

John Fitz Gerald, Adele Bergin, Thomas Conefrey, Ide Kearney, ESRI and Department of Economics, Trinity College Dublin. 15:30-16:00 Coffee Break Session 2: International Trade and Investment

Chair: Philip Lane, Department of Economics, Trinity College Dublin. 16:00-16:30 Internationalisation of Firms, Innovation and Productivity

Iulia Siedschlag, Xiaoheng Zhang, ESRI and Department of Economics, Trinity College Dublin, and Brian Cahill, Forfás and NUI Galway. 16:30-17:00 Irish Equity on the Roller-Coaster of Risk and Exuberance

Peter Dunne and Rebecca Stuart, Central Bank of Ireland 17:00-17:30 The Performance of Ireland's Exportables Sectors over the Recession

Frank Barry, School of Business, Trinity College Dublin and Adele Bergin, ESRI and Department of Economics, Trinity College Dublin. 17:30 Reception.

Outlines/summaries of the presentations are given below.

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Embargo 14:00, Thursday 28 October 2010 "Euro Membership and Bank Stability: Friends or Foes?"

Patrick Honohan, Governor, Central Bank of Ireland. Hit by loan-losses from a bursting property bubble, the Irish banks were brought to near-collapse, contributing to one of the worst economic downturns of the global crisis. The sharp fall in nominal and real interest rates and the removal of exchange risk from foreign borrowing after euro membership played a part in these events. At the same time, several other countries have got into similar trouble, both recently and in decades gone by, so there is no guarantee that staying out of the eurozone would have prevented something comparable from happening. And the euro provided an anchor as the crisis broke.

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Embargo 14:00, Thursday 28 October 2010 "Irish Macroeconomic Policy under EMU"

Philip Lane, Department of Economics, Trinity College Dublin. This presentation will cover a range of topics concerning the conduct of fiscal policy in Ireland and other members of the euro area. At one level, it will report estimates of the effectiveness of fiscal policy in influencing the dynamics of output and inflation. At another level, it will discuss the design of an optimal fiscal framework for a member of a monetary union, involving the design of fiscal rules and a role for an independent fiscal council. Finally, it will assess the conduct of fiscal policy during the global crisis.

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Embargo 14:00, Thursday 28 October 2010 "Labour Market and Potential Output"

John Fitz Gerald, Adele Bergin, Thomas Conefrey, Ide Kearney, ESRI and Department of Economics, Trinity College Dublin. This research considers how the potential output of the Irish economy has been affected by the current recession and financial crisis. The capacity of the economy will clearly be seriously reduced as a result of a greatly enhanced risk premium attaching to borrowing and the consequential impact of the higher cost of capital on future investment. However, because of the flexibility of the labour market, we estimate that the effect on potential output through labour supply will be positive in the long run. To ensure that this flexibility is maintained, appropriate policies are needed to prevent persistent long-term unemployment.

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Embargo 14:00, Thursday 28 October 2010 "Internationalisation of Firms, Innovation and Productivity in Ireland"

Iulia Siedschlag, Xiaoheng Zhang, ESRI and Department of Economics, Trinity College Dublin, and Brian Cahill, Forfás and NUI Galway. Innovation is of crucial importance for economic growth and competitiveness in the context of increased international competition in a globalised world economy. Understanding the determinants of innovation and how it affects productivity is important for designing effective innovation policies. This research examines the effect of the internationalisation of firms on their innovation and productivity performance. We use micro data from two waves of the Community Innovation Survey of enterprises in Ireland covering the period 2004-2008 and estimate a structural model to analyse the role of foreign direct investment and exporting in the relationships between innovation investment, innovation output and productivity. Key findings include: - Foreign owned firms and domestic exporters were more likely to invest in innovation and furthermore, they were more likely to be more successful in terms of innovation output (product, process, and organisational innovations) and higher productivity than firms that served only the Irish market. - Innovation output was positively associated with labour productivity over and above other determinants such as foreign linkages, firm size as well as unobserved industry, firm and time specific effects. - Innovation expenditure intensity was not significantly associated with innovation output over and above other determinants such as foreign linkages, firm size and external knowledge flows, as well as unobserved industry, firm and time specific effects. - For all types of innovations, knowledge flows from co-operations with suppliers, with consultants, commercial labs or private R&D institutes, and with universities or other higher education institutions were positively associated with innovation output over and above other determinants. Co-operation with other enterprises from the same group was positively associated with product and process innovation. Co-operation with customers was positively associated with product innovation. - We find both similarities and differences in the relationships between innovation investment, innovation output and productivity for manufacturing and services, and for technological and non-technological innovation. Disclaimer: This research uses statistical data from Forfás and the Central Statistical Office (CSO) of Ireland. The permission for controlled access to confidential micro data sets has been granted in line with the Statistics Act, 1993. The use of these statistical data does not imply the endorsement of Forfás or the CSO in relation to the analysis or interpretation of the statistical data.

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Embargo 14:00, Thursday 28 October 2010 "Irish Equity on the Roller-Coaster of Risk and Exuberance"

Peter Dunne and Rebecca Stuart, Central Bank of Ireland What is the role of sentiment in driving stock market valuations and how do such effects differ across countries? We apply a novel ex ante approach to the valuation of major European and Irish stocks in order to 'reverse-engineer' the contributions made by sentiment and fundamentals to equity valuation over the last 20 years. This relies on the identification of the risk premium implied by the valuation of an 'easy-to-value' stock as defined by Baker & Wurgler (2007). We find that a significant proportion of Irish equity valuation is attributable to sentiment effects. Despite the openness of the Irish market these effects are not quickly arbitraged away. Sentiment effects in the Irish equity market largely mirror similar effects in other European markets but sometimes there is a magnification of these effects in Ireland. Our findings are consistent with the view that excessively positive sentiment leads to an under-representation of real risks in the value of equity and ultimately to over-investment by firms in risky projects. Our analysis can be used to inform macro-prudential policy and to achieve a better understanding about the presence, size and causes of equity market dislocations related to sentiment.

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Embargo 14:00, Thursday 28 October 2010 "The Performance of Ireland's Exportables Sectors over the Recession"

Frank Barry, School of Business, Trinity College Dublin and Adele Bergin, ESRI and Department of Economics, Trinity College Dublin. This paper examines the available databases on exports and 'exportables' (the term refers to the output of agency-assisted firms, particularly those supported by Enterprise Ireland and the IDA) to assess their performance over the course of the economic downturn. Irish exports have held up well over the recessionary period compared to most of the rest of the EU and the performance of net exports has helped to stabilise the economy. Pharmaceuticals, medical devices and 'business services other than finance and information technology' have recorded particularly buoyant performances. Forfás employment data, available up to 2009, allow us to distinguish between the performance of foreign-owned and indigenous firms in exportables sectors. While indigenous exportables employment was more buoyant than employment in the foreign segment between 2000 and 2007, it has suffered more in the period since then. These patterns reflect the indigenous sector's substantially greater reliance on the domestic market. Indeed employment in this segment fell more than proportionately to the entire private sector over the downturn, due to the extent of its dependence on sales to the construction industry and vulnerability to movements in the sterling exchange rate. Employment recovery in the indigenous exportables sector will be heavily dependent on cost competitiveness vis-à-vis sterling, and will be constrained by the growth of Irish and UK demand. Employment in the exportable services subsector displays a somewhat different pattern. Here the indigenous segment performed better both over 2000-07 and the period since then. It is less reliant on the home market than is its exportable manufacturing equivalent. About half of the losses in exportable services employment in 2009 occurred in the foreign-owned 'IT, consultancy and computer services' sector, whose mass-market-oriented sales appeared to suffer more than did the niche sales of the indigenous segment of the sector. That global IT spending appears to be on the rebound in 2010 provides some grounds for optimism.

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Notes for Editors: 1. Members of the Media are invited to attend the joint ESRI - TCD Conference "Turning Globalisation to National Advantage: Economic Policy Lessons from Ireland's Experience", on Thursday 28 October 2010 from 13.30 to 17.30, at The ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2. For further details on this Conference please visit our website. If you have any queries please contact the speakers directly by email. 2. This is a Research Conference where preliminary research results and implications for policy from two major ongoing projects will be discussed. 3. The outlines/summaries of the presentations are embargoed until 14:00 Thursday 28 October. Ends