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Leprechaun Economics - How real is Ireland's super-fast economic growth?
A debate is raging about whether we can truly believe the super-charged economic growth that is taking place in the Irish economy. Nobel Prize-winning economist Paul Krugman has labelled the rapid expansion of measured GDP as Leprechaun Economics.
Real GDP in Ireland is estimated to have grown by 12% in 2022 - enough on it's own to prevent the Euro Zone from falling into a technical recession at the end of the year.
But how much of this is the direct result of US multinationals such as Apple and a cluster of pharmaceutical companies – reassigning their so-called intellectual property (IP) assets, the copy rights, patents and licences to Ireland as a tax-avoiding measure?
More here in a recent spate of tweets on the Irish economy
"Leprechaun economics" is a term used to describe an economic phenomenon in which a country experiences a sudden and drastic increase in its Gross Domestic Product (GDP) that is not reflective of any significant increase in the country's underlying economic activity or productive capacity.
The term was coined in 2016 when Ireland's GDP grew by a staggering 26.3%, which was widely seen as an anomaly. This growth was largely driven by the relocation of intellectual property assets by multinational corporations to Ireland, which resulted in a large increase in Ireland's GDP without any corresponding increase in actual economic activity or productivity. This sudden surge in GDP was likened to the sudden appearance of a pot of gold at the end of a rainbow, which is often associated with leprechauns in Irish folklore.
The term "leprechaun economics" has since been used to describe similar situations in which a country experiences an artificial boost to its GDP, such as through tax havens, financial engineering, or other factors that do not reflect the underlying strength of the economy. While these sudden increases in GDP may initially appear positive, they can be misleading and obscure the true health of an economy, making it difficult to accurately assess the country's long-term economic prospects.