FDI Ireland Experienced a Brief Economic Boom Essay
- Length: 7 pages
- Sources: 7
- Subject: Economics
- Type: Essay
- Paper: #77173967
Excerpt from Essay :
Ireland experienced a brief economic boom in the mid-1990s, which was a time of relative boom across the Western world. A number of factors contributed to this boom, including a low corporate tax environment, and Ireland positioning itself as a source of foreign direct investment from the U.S. In particular (EC, nd). With an educated, English-speaking workforce and increasing labour productivity, Ireland was successful in repositioning itself as a low-cost gateway to the European market for American firms. This boom, however, created a bubble in the real estate market. Combined with increasing wages, inflationary conditions were created that reduced the ability of Ireland to compete as a low-cost gateway. Already facing the sort of conditions that would constrain FDI, Ireland saw its foreign direct investment collapse with the onset of the Great Recession (Ibid).
Ireland responded to the crisis with an austerity program. This included dramatically cutting public expenditures in order that the country maintain its low cost business environment (Armistead, 2013). The path of recovery, Armistead argues, has been driven by structural changes that the country enacted prior to the real estate bubble and well prior to the austerity program, citing the development of multiple export industries. The austerity, however, can be viewed as an alternative to raising corporate taxes, and Ireland's tax regime has encouraged renewed investment in its technology sector in particular. Thus, the recovery has started to take hold, mainly because of the work the country did in decades past. A key issue remains that could compromise the strength of the recovery -- outside of the tech sector, skilled emigration remains at very high levels, threatening the diversification efforts that have proved so critical to the strengthening of the Irish economy (Lynam, 2013).
There are many pros and cons to export-led economic growth. The most obvious pro-is that such growth represents a net capital inflow -- your country increases its wealth by bringing in money from other countries. The internal market is not fixed in size -- it can be increased via increases in productivity, for example, but growth is usually constrained relative to trading on a global scale. Economies grow much more quickly when they are able to exploit their competitive and comparative advantages to target larger markets.
However, recent cases have shown that there are downsides to focusing on export-driven economic growth. Typically, the downsides come in terms of the things countries need to do in order to maintain their competitive/comparative advantages. If a country is competing on the basis of low labour costs, for example, it must take steps to maintain those low wages or it will see reduced competitiveness. Other costs are also affected. In Bangladesh, worker protections are seen as a cost that threatens business (Howard, 2013); in China it is environmental protections (W5 Staff, 2014). Even Germany maintains no minimum wage, to help it compete for business with the low wage states in the EU to the east (Marsh & Hansen, 2012). The export nations do not see these costs, and when they are aware they often do not care. The buyers are interested in low prices, but those low prices come with social and environmental externalities. In an export-driven economy, it is more likely that social and environmental externalities will be borne by the producing country, not the buying one, so that countries focused on building export markets are often saddled with high costs that they refuse to pass on to buyers. For the exporter, such a decision raises significant ethical considerations.
3. Africa's natural resources have long been exploited, so when examining pros and cons it must be understood that the pros are theoretical in nature. The pros are essentially potential wealth. Most of Africa is sparsely-populated, and the continent's natural wealth is in theory sufficient to bring about a relatively modern lifestyle for the African people. The key is the degree to which the potential wealth that lies in the ground can be converted to the public good. A simple example is to illustrate the role of taxation and freedom from corruption in the transfer of wealth from natural resource to the people. Nigeria has more oil than Norway (CIA World Factbook, 2014), yet Nigeria is one of the poorest countries in the world and Norway has the largest sovereign wealth fund (SWFI, 2014).
York (2012) notes that the potential in Africa is tremendous, and that foreign direct investment is at a high level right now. Yet, there are many issues that prevent this wealth from accumulating in the hands of the average African. A lack of taxation, and rampant corruption are two reasons. They contribute to other issues, including a lack of development of the continent's agriculture and manufacturing sectors. The latter is of particular concern, but both make Africa a net importer of goods, something that sends a lot of the continent's wealth to other parts of the world, rather than developing strong domestic economies (Melik, 2012). Development of resources creates potential economic growth, but that growth is constrained because the wealth is at once dissipated on imports, with the remainder concentrated among the hands of a few.
Grameen Bank won a Nobel Peace Prize for being the originator of the concept of microfinance, or lending in small amounts to entrepreneurs in the developing world that were too small for other financial institutions. The basic premise is that access to credit for investment will unlock the entrepreneurial capabilities of people in these countries, allowing economies to boom and people to be lifted out of poverty. For the most part, this model works. Yet Grameen Bank itself has run into significant problems in recent years.
The microfinance model is substantially different from foreign aid. First, it is lending in the normal sense of the word, and second the source of the finance need not be foreign. Foreign aid has never proven effective, whereas microfinance has been shown to work on small scales. It captures the forces of market economies to create lasting economic growth, the only true path out of poverty.
The issues with Grameen Bank now are, sadly, typical of the power struggles and pettiness of developing nations. The bank appears to be caught up in Bangladesh's domestic politics, and the assault on the bank cannot be useful to the bank's stakeholders. On the surface, the idea that the bank should be audited has some logic, but the reality is that the government of nation only a step or two away from communism is enacting a takeover of the bank. Quadir (2013) outlines the story in a fairly neutral manner, but in doing so ignores the political element of the recent actions of the Bangladeshi government.
Instability is not good for financial institutions, nor is a high level of government involvement. Grameen worked because it put the economic prosperity of everyday Bangladeshis back in their hands; apparently this frightened government. It has also been alleged that Grameen's extensive partnerships with foreign firms has been viewed as a threat by the government (The Economist, 2012).
The UN's millennium goals are a utopian laundry list with no formal structure to bring them about. They reflect ideals about poverty, education, gender empowerment, children's health, maternal health, infectious diseases, environmental sustainability, and "global partnership for development" (UN, 2014).
Canada was a signatory to the UN millennium goals. Harper has argued that Canada has made contributions, such as aid to Africa, and debt forgiveness. Funds are made available for specific programs that contribute to the millennium goals as well (CBC, 2010). These funds are targeted, and Harper has stressed that Canada is focused on results, ensuring that our funds are used effectively in the pursuit of the millennium goals.
Overall, however, little real progress has been made. Part of the problem is that some goals are simply not compatible -- in particular it will be difficult to balance environmental sustainability with pulling people out of poverty -- the world needs far fewer people living a Western lifestyle, not more. And having a country like Saudi Arabia sign off on gender empowerment never made an ounce of sense. The focus that Canada has had to this point has been on the objectives that are a little more tangible and realistic, in particular the ones with respect to health. On that point, we have done a reasonable job, but with increasing populations, climate change, political instability and war, combatting even basic health care issues is a tough ask -- there is only so much the developed world can do until some of the worst countries get their acts together.
Some reports have speculated that minerals sourced from conflict zones are making their way into popular consumer electronics. Castillo (2010) argues that some tantalum in Apple products may be sourced from mines run by militias in the Congo. York (2012) notes evidence of child labour is same said mines. Brown (2012) notes, however, that the issues driving conflict in the Congo are complex.
While the Castillo and York…