There has been an extensive body of literature investigating the importance of foreign direct investments (FDIs) in the Irish economy. Since the 1960s onwards, the continuing dedication of the Irish government to attracting investments from overseas, in particular from the U.S., has transformed the country significantly.
In terms of GDP per capita, Ireland has made impressive progress during the last few decades, climbing from one of the poorest countries in western Europe to one of the richest in the world. As recent data from World Bank shows, Ireland’s GDP per capita (current US $) in 2012 stood at 45,921, in comparison to 38,920 in the UK.
Much of the extant literature attributes the economic development of Ireland to the success of attraction of FDIs, which could be evidenced by the fact that “the overall stock of FDI in Ireland has averaged just below 100% of GDP over the 10-year period from 1999 to 2009, reaching a peak of 149% of GDP in 2002” (Gray et al., 2010).
In their book entitled “Economic Analysis of Ireland’s Comparative Advantages for Foreign Investment”, Gray et al. (2010) selected a list of milestones in Irish policy which resulted in the attraction of multinationals. Figure 1 below shows the detail.
Figure 1 Selected milestones in Irish policy which have impacted on foreign investment
Source: Adapted from Gray et al. (2010).
Nevertheless, there has always been some concern with regard to an increased dependency on foreign investment. Some have argued that a practical matter for Ireland is that it has less and less room for pursuing independent economic policies. For many others, there is a question mark over the long-term impacts of FDIs on the Irish economy, especially in the face of declining flows of foreign investment after the 2008 economic crisis.
The underlying reason for these worries is related to the mobility of FDIs. Understandably, FDIs are attracted into a certain region or nation due to a number of comparative advantages demonstrated by that area. When those comparative advantages diminish or become unsustainable, FDIs may be relocated into wherever else showing them. In order to attract new FDIs and to maintain current investments, a crucial task is to understand what key elements of Ireland have been perceived by multinationals as of significant strength.
A comprehensive survey with the chief executives of foreign-owned plants in Ireland was conducted by Indecon to capture what are the key factors which determine the relative attractiveness of Ireland as a location for FDIs. The main results of the Indecon survey have been presented, in much detail, by Gray et al. (2010) and are shown here.
Figure 2 Foreign firms’ rating on elements of comparative advantage of Ireland for investment
Source: Adapted from Gray et al. (2010).
Whilst it remains unclear for us to say whether the foreign firms surveyed are representative enough of the whole sector, Figure 2 indeed shows some interesting results. The top three elements perceived by foreign firms as significant strengths are comparative corporate tax rate, English-speaking population and government support for foreign direct investment. At a less level, foreign firms also regard skilled employees, membership of Euro and stability of exchange rates, flexible labour force and commitment from Industrial Development Agency as significant strengths in Ireland. Quality of universities and quality of research and development (R&D) are the two factors that are least frequently perceived by foreign firms as where Ireland has significant strength and as their reason to make the investment decision.
It is obvious that universities, and probably the higher education sector as a whole, have not become a key factor, in relative to elements such as corporate tax rate, considered by those multinationals when they attempt to decide whether or not to invest in Ireland. Although it is too arbitrary to assert now that foreign firms do not collaborate closely with Irish universities, it is fair to say that how companies perceive the relative importance of university research and development (R&D) would to a certain extent influence their later decision on working with those universities.
(To be continued…)