Analysis: counties bordering economic hotspots in Ireland seem to enjoy more entrepreneurial activity than other regions
One of the things that amazes me about economic activity is that it behaves like an animal: it grows, it gets sick, it expands, it shrinks. Recent research from UCC has even shown that it can migrate across borders, just like herds of animals.
This research looked at an area of economics called firm interrelationships, which is the study of how the births and deaths of businesses at one point in time can influence the births and deaths of firms at a later point in time. Firm births can cause future firm births by increasing employment and income which will increase consumer demand and result in more firm births.
This is referred to as a multiplier effect as firm births multiply out to cause more firm births. Conversely, you can also get competition effects, where firm births increase rivalry between firms and this results in future firm deaths.
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The results of the research find support for the existence of multiplier effects across European regions. meaning that firm births seemed to cause more firm births. Interestingly, the results also show that multiplier effects are present across regions. Meaning that firm births in a region seem to spill over into neighbouring regions. This can occur for two reasons.
Firstly, firm births can induce what economists call demonstration effects. This is essentially when firm births signal to other people that opening a firm is a good idea. As a result, you get entrepreneurial adopters from different areas who set up firms of their own.
Secondly, multiplier effects across regions could also be explained by what is known as an urban-rural shift. This process is more economic than psychological. Essentially, multiple firm births in one region may lead to 'congestion effects' where inputs, resources, and rents become more expensive due to competition. Aspiring entrepreneurs react to this inflated cost by choosing to set up their operations in another region where things are cheaper.
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While the results of this research can be considered interesting for showcasing how economic activity behaves like a living thing that moves and changes direction, they also provide important insights into how economic inequalities can occur.
British economist, Alfred Marshall, once said that business was 'in the air' in certain places. At the time, Marshall was trying to explain why firms from certain industries tended to cluster together geographically. This is a common phenomenon today and can be seen in Cork’s groupings of pharmaceutical firms and Dublin’s groupings of financial services firms.
The reason you get these geographical concentrations of firms in one area is because they are said to benefit from agglomeration economies. The co-location of firms means that they can learn from each other, share ideas, and observe each other’s operations to improve their own performance.
While there are benefits associated with these concentrations of economic activity, they can facilitate geographic inequalities. Loads of firms being set up in one place, means they aren't set up in another place. If we look at the map, we can see that that vast majority of enterprises in Ireland are in certain hotspot areas.
In 2019, Dublin was home to 28.4% of the Irish population and over 30% of Irish businesses. Meanwhile, Co Offaly, 116 kilometres away, was home to just 1.6% of the population and only 1.2% of businesses. This massive level of inequality has led to the study of 'left behind places' becoming a major topic of interest in economics. A lot of research hypothesises that pull of employment prospects in urban regions can contribute to observed population shrinkage in rural areas.
While the depletion of rural areas is an issue, it's only one part of the story told by the map. We can also see that the counties which border some of economic hotspots in Ireland seem to enjoy more entrepreneurial activity than other regions. For example, the distribution of enterprises in Dublin, Cork and Galway is the greatest. After this, we can see that the distribution is greatest amongst some of their neighbouring counties like Kildare, Kerry, and Mayo.
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These bordering counties all have a greater share of enterprises because the economic activity from the core economic regions in Ireland spills over into them. While this is great news for the core and bordering regions, we can see that regions in the midlands enjoy a lower share of Ireland’s stock of businesses. This issue of inequity raises the question of how strategically we need to think about economic development in Ireland.
Ideally, everywhere in the country would develop evenly and we wouldn’t get issues like shrinkage in rural areas and congestion effects in urban areas. But this isn’t how economic activity works. Economic activity is a real living breathing thing which develops unevenly across space.
Ireland’s economic success stories seem to be located on our Eastern, Southern, and Western coastlines. Our left behind regions seems to be in the midlands. Development of business agglomerations and the better linking of our midlands to our core economic regions could go a long way to ensuring a more balanced growth trajectory for all of Ireland.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
