Why Ireland Should Continue to Invest in Research and Development

During the Celtic Tiger Ireland increased greatly its expenditure on R&D. This was put into two areas; Biotechnology and Information and Communication Technology (ICT). Currently Ireland spends 1.6% of GDP on R&D. However this is below the EU average which is around 1.9%. However Ireland’s current financial crisis and commitment to reduce 15 billion in expenditure from the budget means this investment in R&D is under threat. This would be a huge mistake. Ireland needs only to look at the example of Finland when it needs to answer the question of R&D spending
An example for Ireland is Finland. Finland and Ireland are two countries with many similarities. Both are small, open economies on the periphery of Europe. The population in Ireland is just over four million to Finland's five. The financial crisis Ireland has experience is very similar to the financial crisis that happen in Finland during the 1990s. Over the years 1990-1993 GDP fell by 13% from peak to trough and unemployment climbed to nearly 18%.
Both countries experienced asset price bubbles, particularly in housing. Regulators failed to control the behaviour of the banks and fiscal policy was inappropriate. Yet Finland emerged from its economic depression to rapidly become one of the world’s most ICT-intensive economies with one of the highest growth rates among EU countries. From 1994 to 2000, GDP growth averaged 4.5% per annum.
When the Soviet Union collapse Finland lost a huge share of their export market. In order to compensate for this, Finland decided to cut expenditure in nearly every area except in R&D and education. This was a key decision which Finland is still seeing the benefits. After the crisis Finland emerged as one of the most world’s best ICT sectors. In Suonpera (2009) paper “Lessons for Ireland from the Finnish Crisis” said that by 2000, high tech goods accounted for 23% of the value of total goods exports, up from just 6% in 1991.
It is therefore critical Ireland invests in R&D. In these economic times there are no quick fixes. R&D research could be in crucial to Irelands economic development in moving the economy out of these desperate times