Irish Trade and Foreign Direct Investment

The transformative dynamic is also evident in the Irish trade performance since 1973. Given the increasingly internationalised nature of production processes and supply chains, it is difficult to disentangle all elements of trade performance, but most commentators seem to agree that EU membership provided the necessary context for the change in Ireland’s fortunes. From a position in 1973 where exports represented 38 per cent of GDP and imports 45 per cent, by 1993 exports represented 63 per cent and imports 52 per cent. During the Celtic tiger years, the Irish export performance gained a real head of steam, with a growth rate of up to three times that of European partners. In 1995 Ireland was responsible for just over 2 per cent of all EU-15 exports. By 2008 this had increased to 3.28 per cent of the EU-27. Irish productivity growth consistently outpaced that of other advanced economies from the early 1970s onwards. The Single European Act (SEA) led to a doubling (in real terms) in the amount of investment undertaken by US firms in the EU between the early and the late 1980s, and Ireland’s share of these investments quadrupled over this period.
 

Irish policy over the last three decades has been to target specific sectors for investment: ICT, engineering, international financial services and consumer products and, more recently pharmaceuticals. At the zenith of the ‘Celtic Tiger’ period in 2008, there were almost 1,000 foreign multinational companies in operation in Ireland, employing 153,000 people directly and many more indirectly as sub-contractors and service providers. This compared with a workforce of less than 90,000 in the early 1990s. Amazon, Apple, Boston Scientific, Dell, Facebook, Google, Intel, Pay Pal and Microsoft are amongst the household corporate names which set up in Ireland after 1987, and all of these MNCs cite access to the largest single market in the world as central to their investment decisions. Pharmaceutical companies in Ireland include Allergan, Wyeth Merck, Pfizer, Wyeth, GlaxoSmithKlein and Bristol-Myers Squibb; today some of the world’s top-selling drugs are produced in Ireland, including Lipitor and Viagra. In an interesting mutation in the investment landscape Ireland also became  an important location for foreign direct investment (FDI) by the medical technology sector and  attracted world leading companies such as  Abbott, Johnson & Johnson and Tyco Healthcare. There are many important factors that might explain this success in attracting inward investment, but EU membership, underpinned by secure access to an EU single market of twenty-eight member states and in excess of 500 million consumers, has to rank as very significant.

Remarkably the deep recession did not change the international focus of policymakers. Indeed, in some respects it has actually increased since 2008. The principal policy tool through which FDI was increased was widely perceived to be Ireland’s low level of tax on corporate profits (12.5 per cent). Against a backdrop of years of austerity, in 2013-14 the tax practices of MNCs came under international pressure as Apple, Facebook and Google channelled massive amounts of their global revenue through Dublin, in the process saving tax to the tune of billions of dollars. Ireland’s association with this mode of corporate tax avoidance came under heavy EU (and US) scrutiny in 2013-14 and it remains to be seen whether Brussels or Washington will take action to force MNCs to pay more tax. At the very least we can say that the Irish capacity to continue attracting high value added international investment depends crucially on what happens at the European level.