Is Northern Ireland dramatically poorer than the Republic?

Before Ireland was partitioned in 1921, the six counties that were to become Northern Ireland were the powerhouse of the Irish economy. Two thirds of Ireland’s manufacturing capacity was in the six counties, Belfast was Ireland’s largest city, and the economy was focused on high value manufacturing, unlike the largely agricultural economy in the rest of the island.

Today, the economic situation in the two jurisdictions has flipped. The Republic of Ireland is now one of the world’s richest countries when measured by Gross Domestic Product per capita; at $72.6k it ranks as the fourth richest country in the world, behind Brunei ($76.7k) but ahead of Norway ($70.6k), the United Arab Emirates ($68.2k) and Switzerland ($61.3k).

On this measure, Northern Ireland is far poorer. Given Northern Ireland GDP per capita of €23,700 ($29,310), GDP per capita south of the border is 2.5 times higher than in the north. For comparative purposes, GDP per capita in West Germany ($15,300) was only 1.6 times higher than GDP per capita in East Germany ($9,679) in 1990. In terms of the disparity of GDP per person, the comparison between Northern Ireland and the Republic would be similar to the disparity between the United States and Mexico, or Iran.

However, there are many problems with using GDP per capita to compare the economies of Northern Ireland and the Republic. Ireland’s GDP figures are subject to distortions by the activities of multi-national companies, which can structure royalties and intellectual property in such a way that inflates GDP but which result in little tax revenues to the state. It is for this reason that Gross National Income (GNI), which adjusts for many of these distortions, is commonly cited as an appropriate metric for international comparison of the Irish economy.

There are no directly comparative figures for Northern Ireland, but Ireland’s GNI per capita of $56,870 is 1.9 times higher than Northern Ireland’s GDP per capita. This is not quite as dramatic as the GDP comparison, but it is still a very large discrepancy. Is the Republic of Ireland really twice as affluent as Northern Ireland?

To see if the dramatic difference between economic metrics between the two Irish jurisdictions was actually something that was tangible for real people, I decided to compare average household disposable income (i.e. average income after tax) north and south of the border. The latest data available was for 2015 for both north and south.

Comparing countries with a different currency obviously introduces problems when trying to compare the two, especially with currencies such as the pound and euro which have fluctuated dramatically against each other in recent years. I decided to use current exchange rates, which at the time of writing makes one pound equal to €1.14.

The map below shows average disposable income for the 26 counties in the Republic of Ireland, and for the five NUTS 3 regions in Northern Ireland (Belfast, Outer Belfast, East of Northern Ireland, North of Northern Ireland, and the West and South of Northern Ireland).

In term of household income, the poorest region of Ireland is not actually in Northern Ireland, but across the border in County Donegal, where average household incomes are €15,705. In fact, an area being in Northern Ireland is not necessarily an indicator of relative poverty, but proximity to the border is.

With an average household disposable income of €19.9k, the Outer Belfast area is actually one of the wealthiest areas in Ireland outside of Cork, Limerick, Waterford, and the Dublin commuter belt. The poorest areas in Ireland are to be found either side of the border; the Ulster counties of Donegal, Monaghan, Derry, Fermanagh and Tyrone are amongst the poorest in Ireland.

There are likely a number of reasons why these areas are relatively less well off than other regions. Wealth in Ireland flows from proximity to cities; most notably Dublin, where the three counties bordering it are amongst the most affluent in Ireland, but also the cities of Limerick, Cork and Waterford. The rural counties of Kerry, Mayo and Donegal lack nearby major population centres, and are subsequently poorer as a result.

However, there is a strong argument to be made that the frontier nature of the border counties are a strong drag on economic growth. Even given that both sides of the border are currently in the European single market, the differing regulatory environments and different currencies either side of the Irish border are an impediment to trade and commerce and depress economic growth. Were additional impediments to cross border trade to be introduced, the adverse impact on a region which is already the poorest in Ireland would be profound.

Whilst GDP per capita is much higher in the Republic of Ireland than Northern Ireland, the incomes of people living either side of the border are similar. Much of the reason for the discrepancy is attributable to the accounting practices of multi-national companies; the large proportion of the Irish population who live in or near the economic powerhouse of Dublin is another.

The British and Irish governments must realize that any new barriers to the movement of goods or people across the Irish border will likely be economically disastrous in regions that are already amongst the poorest of both jurisdictions. The accounting treatment of intellectual property in Dublin-domiciled multinational firms might not make any difference to the prosperity of people in County Donegal; being unable to trade freely across the Irish border certainly will.

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