The latest figures from the CSO suggest that Irish GDP increased in the first quarter of 2011 by 1.3%. However, GNP has fallen by 4.3%. In comparison with the corresponding quarter of 2010, GDP was up by 0.1% while GNP was 0.9% lower. The big difference between the increase in GDP and decrease in GNP is attributable to an increase in Net Factor Income. GDP captures all economic activity within a country, including foreign multinational companies operating within Ireland. GNP on the other had excludes foreign multinationals operating in Ireland which repatriate their income to their home country. Therefore, GNP can be viewed as a more accurate measure of the health of a domestic economy. Figure 1 displays the quarterly trend in GDP and GNP since 2006.
There has been a substantial gap between GDP and GNP since the Celtic Tiger period of Irish economic growth. Q4 of 201 saw a narrowing of the gap between the two, however, it has now widened again considerably. Figure 2 displays the ratio of GNP to GDP.
It can be observed that this ratio has been decreasing throughout the economic downturn, with some recovery in the final quarters of 2010. However, Q1 of 2011 has reversed this recovery and suggests that the Irish domestic economy is underperforming. It would appear to be multinational companies, as oppose to indigenous companies, which are driving the growth in Irish GDP.
Justin Doran is a Lecturer in Economics, in the Department of Economics, University College Cork, Ireland.