When the modern Irish State was founded in 1922 the industrial sector was made up of a small number of manufacturers, largely in traditional sectors - food, drink, textiles - producing almost exclusively for the home market.
Protectionist measures were introduced in the 1930s to encourage the expansion of indigenous industry, but by the 1950s these measures were clearly not contributing to economic development. Industry was stagnating and the opportunities for expanding employment through dependence on the home market had become limited.
Ireland's industrial breakthrough had its roots in decisions taken in the 1950s to achieve economic expansion by stimulating export-based industrial development.
In 1952 Córas Tráchtála, the Irish Export Board, was established to promote exports and in the same year the first capital incentive schemes were introduced to encourage the establishment of new industry in underdeveloped areas. In 1958 the first tax incentives were introduced to encourage the expansion of industrial exports. The Industrial Development Authority was given the role of promoting industry with a mandate to assist the indigenous sector and to encourage foreign firms to set up new industries.
The Anglo-Irish Free Trade Agreement in 1965 contributed to the opening-up of the Irish economy. Accession to the EEC in 1973 brought tariff-free access to the markets of the Community for Irish goods. In the early 1970s the Industrial Development Authority encouraged industry in export-oriented growth sectors such as electronics, engineering and pharmaceuticals to set up in Ireland. These developments fostered a much more open economy and a strong growth in exports. Exports of goods and services amounted to 37% of GNP in 1973; these rose to 56% in 1983 and to 90% in 1995.
The increased pace of economic development since the 1960s has been accompanied by significant changes in the composition of output and employment. In 1995 industry (including construction) accounted for about 28% of total employment compared to 21% in 1949, while agriculture represented 11% of total employment, compared to 43% in 1949. As in other countries, the share of the agricultural sector in employment has been falling steadily while that of services has been rising. The services sector accounts for slightly over half of GDP and for almost 61% of employment.
In the mid-1980s the economy faced a number of serious difficulties, the most important of which were declining employment, substantial emigration and a rapidly rising national debt. To deal with these problems, the Government, employers and trade unions agreed in 1987 on a three-year Programme for National Recovery. This emphasised fiscal and monetary stabilisation, tax reform, pay moderation and sectoral development on the basis of consensus. The programme proved successful and was followed by two others: the Programme for Economic and Social Progress (1991 to 1993) and the Programme for Competitiveness and Work which began in 1994. The most recent of these is Partnership 2000 which covers the period 1997 to 2000 and builds on its predecessors the Programme for Competitiveness and Work, the Programme for Economic and Social Progress and the Programme for National Recovery.
Over the period of these programmes economic growth was over twice the EU average, inflation had fallen to one of the lowest rates in the EU, and employment in the private non-agricultural sector had shown an annual average growth of about 2.5%. Budgetary consolidation measures linked to the programmes have given Ireland one of the lowest Government deficits in the EU.