in other government borrowing. in the end, while ireland ’ s engagement with globalization over the past quarter century cannot be counted a failure, its earlier characterization as a success must now be at least very heavily qualified. what then are the macroeconomic policy lessons for countries whose growth ambitions have also been based on a embracing globalization? in this lecture, i will suggest that policymakers in small open economies need to be especially alert to the fact that globalization can act to accentuate, accelerate and prolong macroeconomic trends both in the upswing and the downturn. it ’ s as if globalization acts as a turbocharger for the small open economy. just when things seem to be going very well in many dimensions, you can get into trouble very quickly and at a time when some of the conventional warning indicators are not flashing. rapid and quite protracted growth spurts are possible, based not only on expanding exports to the vast global market for goods and services, but also on the availability from neighboring countries or further afield of additional factors of production, whether material inputs, labour or capital. i will illustrate the turbocharging phenomenon drawing on the experience of ireland in the past two cycles, in both of which serious policy errors were made, allowing an unsustainable boom to get out of hand. recovery from the first cycle ( in the 1980s ) was at first slow, but bis central bankers ’ speeches then accelerated at an astonishing pace which sowed the seeds of the construction bubble of the 2000s from the aftermath of which the economy is only now consolidating the early recovery phase. the lessons are clear : macroeconomic policy in the globalized economy needs to be even more alert to the dangers of an unsustainable turbocharged boom. however enjoyable it is while it is in process, the bust – potentially also turbocharged – is even more painful. i will also touch on another, not unrelated, globalization - related theme, likely to be even more relevant to tanzania, namely the tendency for globalized economies to be structurally incomplete or “ hollowed - out ” both in productive capacity ( concentration on a limited range of economic sectors1 ) and in the repertoire of macro - fiscal and prudential policy tools ( as reliance is increasingly placed on ( i ) external markets for components or factors of production and on ( ii ) external institutions and analyses for the design and in some cases delivery of policy. ) this tendency can feed the turbocharger and restrict the capacity for policy response to

emerging problems. 1. international aspects of the fiscal crisis and recovery of the 1980s in trade, migration and finance, ireland had of course been an exceptionally open economy for a very long time. the large migration flows, especially to the uk and the new world, and the currency and banking links go back to the early 19th century at least, with scarcely any overall interruption. irish banks parked their excess resources in the london money market right up to the 1960s – a pattern familiar to many african countries today. nor is the current crisis the first ( o grada, 2011 ) – indeed the potentially turbocharged nature of the globalized economy is well - illustrated by the rapid recovery from the previous severe crisis of less than a generation ago, whose onset coincided with the decoupling – for the first time since just after the napoleonic wars – of ireland ’ s currency from sterling. the earlier of the two macroeconomic cycles we look at happened at a point where global capital markets were still just beginning to move into the high gear that we see today. we may think of this as turbocharger mark 1. it allowed the irish government to access foreign capital to some extent without much by way of credit risk premium, but the fear of a sudden stop of this capital flow brought expansion to an end and resulted in a painful and protracted recession through the 1980s. that crisis had its origin in the turbulent macroeconomic years of the 1970s which themselves saw ireland make several severe demand management errors which stifled its capacity to benefit fully from the opportunities offered by eu ( ec ) membership from 1973. new opportunities there were, and especially the higher prices for agricultural produce under the common agricultural policy. but that was not all : eu membership became a major channel for transmitting globalization to ireland. but the expansionist fiscal response to the stagnation of the 1970s created a huge and spiralling government and balance of payment deficit which proved difficult to reverse in the early 1980s. by this stage, membership of the erm of the european monetary system had broken the currency link with sterling, and the irish pound was prone to being realigned against the stronger erm currencies – something that happened about once a year for the first 8 years of the system. it is interesting therefore to contemplate how international factors influenced the fiscal correction of the 1980s. although exchange controls still existed and indeed had been as with many african countries, the tendency for comparative advantage in trade to lead to heavy concentration in exports on just a few commodities is a