Impact of EU Membership

An evaluation of the impact of the 1989-93 Community Support Framework suggests that by 1993 Northern Ireland GDP was 3.6 per cent higher than would have been the case in the absence of EU funding (similarly, 10,000 jobs had been created and sustained). The spending agreed under the 1994-99 Structural Fund Plan, although the annual spending figures represent an increase relative to 1989-93, is still only a small proportion of Northern Ireland GDP (less than 2 per cent). By applying a method used by the Institute of Economic Affairs (London) it is possible to estimate the net economic benefit to Northern Ireland arising from EU membership (i.e. the positive effects arising from subsidies to farm prices, free trade to the rest of the EU and the consequent incentives to greater foreign direct investment in the Province but also allowing for the negative impacts of higher food prices and taxes). This net benefit was between £260 million and £560 million in 1994 or 2-4 per cent of regional GDP. In proportional terms this net benefit was about half of that applying to the Republic of Ireland and contrasted to an estimated net cost of 1 per cent of GDP for the UK as a whole. The impact of access to the Single European Market has the potential to effect the Northern Ireland economy in a more profound manner than the relatively small flow of financial transfers arising from Brussels. The Single Market should reduce transaction costs and hence raise profits and sales for Northern Ireland exporters. Northern Ireland’s membership of the Single Market has to some degree acted as an encouragement to inward investment (though whether this was as important as other factors promoting the regional location could be disputed). From the point of view of Northern Ireland firms the downside of the Single Market is the likelihood that competition will be increased. The European Commission is creating pressure to ‘harmonise up’ regulations in regions such as Northern Ireland to the level of the more highly regulated parts of the EU.Hence, there have been changes in 96 regulations and Directives in areas such labour market conditions and the environment. Since Northern Ireland would currently be situated somewhere in the middle of the EU with respect to levels of rigour of regulatory standards and compliance, the pressure to harmonise is likely to raise production costs in the absence of some compensating change (e.g. with respect to technology and management) within companies. In the short run this would seem to imply a damaging effect on levels of output and employment. In the longer term, regulations could be beneficial to the extent that dynamic effects are generated though this is dependent on firms being sufficiently innovative in terms of management and technology to be able to respond to the regulatory changes so as to avoid any significant increase in costs.