Dr. Seamus McGuinness:

The following are among the questions we have addressed in academic papers published by the Cambridge Journal of Economicsand in Irish Studies in International Affairs. First, how does the performance of the Northern Ireland economy compare to that of the Republic of Ireland and to British regions? Second, what are the potential explanations for Northern Ireland's poor productivity performance? Third, what are the potential costs of future reunification?

In terms of the relative performance of the Northern Ireland economy, we found no evidence to support the view that the Northern Ireland economy was heavily integrated with either the Great Britain regional economies or the Irish economy. These are important findings because they weaken the argument that a change in the constitutional position of Northern Ireland, whereby Northern Ireland's ties to the UK are weakened in some way, would have large economic consequences. The findings also suggest that the economic gains to Northern Ireland from being part of the UK are less than might previously have been thought. There is no evidence to suggest that Northern Ireland has benefited economically from any peace dividend. In terms of GDP per capita, Northern Ireland ranked tenth poorest of 12 UK regions in both 2000 and 2014, ahead of only the north-east region and Wales. Relative to the Republic of Ireland, using GNI* per capitafor the Republic of Ireland, which removes the distortional impacts of the multinationals, output per head was 51% lower in Northern Ireland in 2018.

One reliable measure commonly used to assess living standards is household disposable income, which was 12% higher in the Republic of Ireland compared to Northern Ireland in 2016. The proportion of individuals at risk of poverty is substantially higher in Northern Ireland compared to the Republic of Ireland, at 14.3% in Northern Ireland compared to 8.9% in the Republic of Ireland. We have found that the Irish tax system is much more progressive and has much more pronounced redistributive properties than that which operates in Northern Ireland.

A good measure that captures overall differences in general welfare and living standards is life expectancy. In 2018, life expectancy at birth in the Republic of Ireland exceeded that of Northern Ireland by 1.4 years. We cannot say for sure what is driving these differences. A broad range of factors, including income, education and employment opportunities and access to healthcare services, will generally together determine life expectancy in a region. As such, differences in life expectancy across countries can be interpreted as a cumulative measure of differences in general welfare and living standards.

With respect to the question on the potential explanations for Northern Ireland's poor productivity performance, this is likely to be driven by a number of factors, including lower educational attainment, lower levels of export orientation and lower-intensity and poorer-quality foreign direct investment, FDI.

Education and human capital development will strongly determine regional macroeconomic outcomes such as productivity levels and, therefore, ultimately growth rates. It is probably the most important factor driving relatively low productivity in Northern Ireland. Across all ages, education and enrolment rates are lower in Northern Ireland, compared to the Republic of Ireland. For example, the rate of young people aged 15 to 19 enrolled in educational programmes is 93% in the Republic of Ireland, compared to 74% in Northern Ireland. Northern Ireland is much less export intensive, compared to the Republic of Ireland. Exports account for 15% of total business turnover in Northern Ireland, compared to 54% in the Republic of Ireland. Foreign direct investment in Northern Ireland is less intensive and lower value added, compared to the Republic of Ireland. Enhancing FDI flows to Northern Ireland and export activity are likely to be key policy targets in any scenario of constitutional change.

Finally, what are the potential costs of future reunification? The question of who will bear the economic cost has been a key feature of the debate on future constitutional change. Subvention, which refers to the gap between public spending and taxes in Northern Ireland was estimated at £9.2 billion sterling in 2017-2018. However, the subvention figure falls by 25% when we extract expenditures that are no longer likely to be incurred post-reunification, such as Northern Ireland's contribution to UK defence spending, debt service costs and international services. Furthermore, some of the costs of Northern Ireland's old age pensions estimated at £3.2 billion sterling in 2016-2017 could also remain a UK liability.

Nevertheless, as stated in our submission, the focus for policy should be to address the issues, some of which we have highlighted here, that contribute to lower productivity in Northern Ireland which create the need for subvention. In the event of a border poll ratifying unification, a transition period would be necessary to allow operational responsibility for Northern Ireland to be transferred to the Republic of Ireland. The length of any transition period and the success of any new policies implemented during it will also be of importance. Northern Ireland's low productivity is the main driver of subvention costs, so the success of policy reforms in areas such as education and industrial policy will influence this cost.