Running Head: FOREIGN DIRECT INVESTMENT AND IRELAND’S TIGER ECONOMY
Foreign Direct Investment and Ireland’s tiger economy
QUESTION 1: How was this phenomenon reflected in Ireland’s economic and related statistics and any other results described in the case?
· For the first time in Ireland’s history, 47% of the employed workforce, which generated around 82% of industrial output, was employed by foreign-owned industries. This was a great score in Ireland’s economy, which only meant more money injected into the economy.
· The Gross Domestic Product (GDP), which is the difference between export and imports in the country, had largely increased, with Foreign Direct Investment responsible for 16.5% of Ireland’s GDP (Bufacchi, V 2019).
· There was a huge inflow of corporate tax revenues in the country. Additionally, other taxes, such as income tax, were boosted, the Irish economy benefited the most, and was able to attain its budget targets for the first time.
The country’s budgeting capability has helped it become very competitive among other countries in the region.
· The Irish economy oversaw an 85% economic growth, with companies in the chemicals, computer, and electrical engineering sectors accounting for 40% of Irish GDP growth and 78% of Irish industrial growth in 1998.
· The Irish workforce became highly educated, qualified, and competently skilled due to the high demand for a skilled labor force by the companies in operation. This allowed young Irish citizens to identify their preferred area of study to maximize immediate productivity.
· Through massive inflow of foreign direct investment, Ireland’s shares in the OECD (Organization for Economic Cooperation and Development) massively grew, reaching a level out of proportion with its GDP, a welcome relief.
· Due to the small size of the Irish economy, it was estimated that a single launch of an FDI’S multi-national company’s product would massively and positively impact the economy, with academics pointing out the example of the Irish made Pfizer Viagra, which increased the output of Irish organic chemical products by 70%.
QUESTION 2: What reasons are identified in the case of this vastly improved performance?
· The favorable exchange rates have improved Ireland’s competitiveness in the export market through the late 80s and early 90s.
· Exports are very important for the country and it is improving the country’s economy since it is able to gain a lot of income for its growth.
· Additionally, a 10% devaluation in currency accompanied by the dollar’s strength and the sterling pound further boosted Ireland’s competitiveness. Furthermore, after Ireland joined the European Monetary System, a re-evaluation of the Irish pound improved Ireland’s export competitiveness.
· By eliminating third-level tuition fees, Ireland’s government improved the quality of the skilled labor, thus improving output, an attraction to the multi-national companies. Access to a skilled labor force played a crucial role in companies setting camp in Ireland.
· The advent of the American IT boom and the formation of the single European market in 1992 encouraged and oversaw Ireland’s economy attracting huge foreign direct investment.
· The full implementation of the Maastricht criteria, which introduced fiscal discipline and later resulted in low deficits and debt to GDP ratio, was a major milestone in improving Ireland’s economy.
· This strategy also helped the country make a lot of improvements and developments that have made the country attract a lot of investors who start businesses are create a lot of employment for the people.
· Ireland’s 10% manufacturing tax rate was also effective as it enhanced and ensured Ireland’s continuous competitiveness compared to other European countries. Additionally, a reduction of corporate tax in Ireland attracted companies with high operating margins such as pharmaceutical companies to land in Ireland and start conducting business. This was so since, unlike their neighbors, Ireland never had a huge corporate stream as its source of revenue. Thus reducing it would have no impact on its revenue collection.
Bufacchi, V. (2019). Ireland after the Celtic tiger. Philosophical Perspectives on Contemporary Ireland, 88-108.