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FDI and Ireland
Which factors have been important in driving Irish growth?
Following several years of significant disruption to Ireland on the heels of the civil war, including the protectionism that characterized the post-depression economic stance of many countries and the economic nationalism that Ireland favored under De Valera, the need for a pro-market orientation slowly dawned on a stagnant Ireland. The passage of a series of business-friendly acts designed to jumpstart the economy provided some lift and -- perhaps more importantly -- signaled Ireland's readiness to articulate national economics differently. The creation of the Industrial Development Authority (IDA) provided opportunity for an adaptable mechanism designed to position Ireland as a lucrative location for multinational corporations to establish international facilities and operations. Despite strong shocks from two oil crises in the 1970s and high unemployment, the IDA was able to reinvent itself and pursue aggressive recruiting of foreign corporations. But an economic balance proved elusive as Ireland's formula for increasing employment and building up their country's industrial base did not dovetail with the constellation of incentives offered in exchange for FDI. With the Program for National Recovery (PNR) in 1987, Ireland...
A strengthened Ireland courted a new relationship with the European Union, garnering farming subsidies and infusion of funds for infrastructure development through the Single European Act (SEA) of 1986. Ireland could now claim benefits of its membership in the EU since Ireland had achieved the requisite levels of macroeconomic stability -- factors further underscored by the Maastrict criteria in 1992.
2.What have been the benefits and disadvantages of FDI in Ireland?
Before Ireland fully understood the impact that FDI was having on the nation's exports, the unemployment level hovered in the mid-teens and growth was inexplicably jobless. Domestic exports were flat, and the national economy was sluggish and severely lagging the FDI economic indicators. The touchstone was a substantive difference between the gross domestic product (GDP) and the gross national product (GNP), with the latter excluding profits earned by foreign enterprises. Further analysis of employment data showed the marked inroads made by MNC's: 1998 workforce data showed that 47% of industrial workers generated 82% of industrial output through their employment…
Reference
Alfaro, L, Dev, V., and McIntyre, S. (2010). Foreign direct investment and Ireland's tiger economy (A). [Case Study 9-706-007]. Boston, MA: Harvard Business School Publishing.
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