The Celtic Tiger: Foreign-owned Exportoriented Firms Drive Ireland”s Phenominal Economic Success

Foreign direct investment has been the cornerstone of the phenomenal growth success of the Irish economy in recent years. According to Dr Frank Barry and Professor John Bradley, writing in the November issue of the Economic Journal, the foreign sector now accounts for nearly half of Irish manufacturing employment and 60% of total output.

Ireland’s success in attracting foreign investment has been bolstered by wage moderation, a stable fiscal environment, rapidly improving infrastructure and an increasingly well educated labour force. And together these achievements have led to cumulative growth in Irish GNP twice that of the whole OECD and employment growth almost double that of the fabled US ”jobs machine” and four times that of the EU.

While Ireland”s initial success as a production base for foreign companies was due to a generous capital grants programme and a low rate of corporate profits tax, there now seems to be a critical mass of firms in high-tech sectors. Surveys show that executives of newly arriving foreign companies are in the computer, instrument engineering, pharmaceutical and chemical sectors, suggesting that their location decision is strongly influenced by the fact that other key market players are already located in Ireland.

Barry and Bradley describe the characteristics of foreign industry located in Ireland and the interactions between the foreign sector and the rest of the economy. In particular, they note that foreign direct investment has helped reorient Irish production into more highly-skilled and export-oriented sectors:

• Administrative and technical staff comprise 17% of employment in the foreigndominated sectors compared to only 14% in total manufacturing; while foreign subsidiaries are more R&D intensive than indigenous Irish manufacturing.
• The foreign sector is highly export-oriented: 86% of output from foreign-owned firms is sold abroad compared to only 35% for indigenous firms.
• The inflow of foreign companies has reoriented Irish exports away from the UK market towards more rapidly growing destinations: 44% of exports from indigenous firms go to the UK but only 23% of foreign subsidiaries” exports.

”Foreign Direct Investment and Trade: The Irish Host-Country Experience” by Frank Barry and John Bradley is published in the November 1997 issue of the Economic Journal. Barry is at University College Dublin; Bradley is at the Economic and Social Research Institute, Dublin.

Frank Barry

00353-1-706-8239 | Barry@ollamh.ucd.ie

John Bradley

00353-1-668-9984 ext. 459 | jbradley@esri.ie