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I am a final year student in NUIG and am undertaking a minor in the field of economics. Part of the course is to design a web page on any aspect of the Irish economy, that could be useful to researchers, economists, students or anyone with an interest in the Irish economy. I have chosen as my writing option to analyze foreign direct investment and the role of multinational companies in the country. I have included various links which I hope will prove useful.You may if you wish contact me at my Email address.
The successive governments over the years have been committed to keeping the business environment competitive. It has been most noticeable in the last 10 years when we have had a growth rate in excess of 10% per annum. This has been referred to as "staggering" in a recent IMD report. 70% of our GDP is exported to established European and US markets and we are also the only English speaking country in the EMU for whom exporting is a way of life. This shows how ideal Ireland is from an investment point of view.The IDA have a specific page on foreign investment, along with other detailed information which may prove adequate.
Ireland is one of the best in Europe for its quality of education. It places a large emphasis on academic achievement. One must remember businnesses are built around people and Ireland's people are the country's true wealth. 70% of university students choose engineering, computer science or commerce as a course to study, leaving the country with a highly educated and eager workforce in the areas where industrial growth is at its highest. Dell is one such company that has benefited from these advantages. 41% are under the age of 25 which emphasises the strong availibility of labour. Ireland's adaptibility and pride in its labour force is a clear major advantage to any company.
Ireland's operating costs are very competitive. Direct and indirect labour costs are amongst the lowest in Europe. It also pocesses two vital factors needed in a workforce-flexibility and high productivity. It has a sophisticated and competitive telecommunications infrastructure which offers low tariffs to volume users, as well as quality and reasonably priced office and factory premises, with well maintained service costs (i.e. power and water).
In recent years over $15bn. has been invested in its telecommunication infrastructure, leaving Ireland with one of the most advanced digital networks in Europe. This level of investment needs to be maintained in order that Ireland keeps abreast with the other leading economies of the world. High regulated competition keeps these costs down. Forfas have a recent publication out on telecommunicat ions improvements in Ireland.
The wise investments in infrastructure allows rapid access to world markets for manufacturers. This is shown in the fact that over 1200 exporting companies in Ireland are supplying world markets, efficientlyand effectively from locations around the country. It is an ideal hub from which to service a Single European Market of some 370 million people and a world market which is as large as you want it to be.
There are over 127,000 people employed by the 1200 overseas companies in Ireland. It can be broken down as follows:
US 500 Co's.-----------74,500 Employees UK 200 Co's.-----------16,100 Employees Ger 170 Co's.-----------11,360 EmployeesThese companies account for £17.1bn. of Irish exports and contributes £6.9bn. to the economy each year.Ireland is the most profitable location for US investment with a return of 4 times the EU and world average over the past 10 years. In 1996 FDI inflows were recorded as being $1,722m compared to that of $-43m in 1986.(3)
In 1958 there were 21,000 employed in manufacturing but by 1994 this figure rose to 70,000. Most of this is attributible to the MNC's which have set up here. In the 1960's an intensive capaign began to attract foreign investment but in the 70's this approach became more selective. In the mid 80's these campaigns began showing dividend's and in the early 90's it came to the fore.(1)
Most of this investment is in the chemical, pharmaceutical and electronic industry and more recently the service sector. Included in the Forfas annual report is recent information on sectoral analyses. This is shown in the fact that 16 out of the world's top 20 manufacturer's are operating in Ireland. The fact that 300 of the world's electronic companies have invested here can also be added. These businesses employ 30,000 people directly and account for 25% of our total exports. Approximately 55% of manufactured output and 76% of manufactured exports are attributed to overseas owned industry. One of the main reasons for this expansion is because most of the grants and tax concessions made availible by the IDA to entice MNC's to these shores, have been taken up by the foreign sector.
Grants and subsidies offered by the government, allow MNC's to offer lower prices and higher wages than indigenous competitors. Existing Irish co's may be displaced or the emergence of new firms hampered.
A lot of the profits they earn are repatriated which in turn can have a negative effect on the Irish balance of payments.
Large amounts of tax revenue are created by MNC's but in Ireland this is overstated as many of the MNC's engage in transfer pricing, which is declaring the corporation's profits in a country with low taxes. In many cases, the corporation tax paid by foreign firms is actually outweighed by the subsidies and grants it receives from the government. At one stage, both Ireland and France were offering a one time tax free grant of 50% of the value of the investment, in return for influencing the MNC's location. (4)
It is possible that the unemployment rate may increase, as MNC's introduce technology developed elsewhere in capital abundant countries,which may act as a labour shedding technology. FDI - A hidden agenda
Naturally they have their positive aspects which include higher wages and better prosperity among the Irish people, the introduction of new technology which increases the standard of living and above all employment, which is one of the government's main aims in trying to attract MNC's to this economy. The Irish government can free ride to a certain extent, thats if they decide to depend on the results and research from MNC's, then there would be a less need for funding in this area. EU report on research.
"One of the great myths about the Irish economy is that it is hugely dependent on MNC's" (5)- Up until a few years ago this statement was accurate but they have lost much of their force since then. Recent article in Irish Times. MNC employment has risen by around 20,000 over the past 3 years, but total employment is up by over 120,000. Much of ths increase has been in the service sector. If anything, Ireland has become less fiscally attractive to foreigners over the past few years, many of the grants and tax dodges once used to seduce them have gone. Yet the foreign direct investment still comes.(8)
After the collapse of the Asian economy, MNC's around the world are going to feel this impact. They are going to face cheaper products from the East which will decrease their own demand and surely restrict profit making. In England job cuts have already been announced in the electronics sector and this seems almost inevitable to happen in the Irish economy. Due to the high degree of tranfer pricing in Ireland, the official staistics will show a large decrease in growth.
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(1) "The economy of Ireland"-O'Hagan.Go Back
(2) "IDA pulication"-Internet
(3) "The OECD observer-Statistics 1998"Go Back
(4) "FDI in the 1990's"-Cynthia Day WallaceGo Back
(5) "Irish Indepentent-Business supplement-15/Oct./1998"-Brendan KennanGo Back
(6) "Forfas home page"
(7) "Trinity Dept. of economics"-1998 working papers
(8) "The Economist" - May 17th 1997Go Back
(9) "The Irish Times Archive"
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