FOREIGN DIRECT INVESTMENT IN IRELAND

Implications of Foreign Direct Investment (FDI) in the Republic of Ireland

Implications of Foreign Direct Investment (FDI) in the Republic of Ireland

Introduction

Over the last forty years, Ireland has been a key location for foreign owned companies looking to establish a foothold in Europe or expanding their operations overseas. Recently, fifteen hundred foreign companies, mainly in the pharmaceutical, technology, manufacturing, financial services and biosciences sectors, have invested in Ireland and play a vital role in the performance of the economy of Ireland. The country has become the best location for business establishment and continues to attract sizeable inward investments projects. Currently, big corporations such as Ebay, Facebook, IBM, Goa (Orange), Amazon, Blizsard (Vivendi), Boston Scientific, Hertz and Business Objects have made significant investments in Ireland (OECD 1999, 100). The main reasons behind Ireland's success at attracting inward investment are:

• EU membership

• A favorable holding company regime

• 12.5% corporation tax rate which applies to all companies

• Double taxation agreements with 50 countries

• Patent tax exemption

• Research & development tax credit

• IDA grant incentives

• Excellent business environment

• Management talent

• Young, educated workforce

Now, Ireland has emerged as a magnet for internet/digital media investment and a global center for the biopharmaceutical business with industry leaders making Dublin the hub of their respective European operations. Despite the challenging economic environment of recent times, Ireland continues to be highly attractive to foreign direct investment, both from companies with operations established here and from new companies. As a member of the European Union (EU), Ireland is part of the world's second largest economy where people, capital and goods can move freely (Görg 1997, 76).

Description and Analysis

Ireland does not rank high by international comparison in either the size of its domestic market or in reference to internal capital intensity. Nevertheless, its success in attracting FDI has been well documented. Despite the small size of the Irish domestic market, foreign corporations are able to locate within the European "single market", by moving productive facilities to Ireland, thereby circumventing trade barriers and gaining access to the largest integrated market in the world. Thus, what attracts FDI to Ireland is not the size of the Irish market per se, but rather the size of the EU market (Sweeney 1999, 16).

Ireland's membership in the EU has promoted the country's attractiveness as an FDI target in another important way. As in the case of all businesses, multinational corporations will invest in those host countries that provide the needed infrastructure and social overhead capital. The Irish government provided some through internally generated capital, but the country also received significant transfers of structural funds under the EU's Community Support Framework. Much of this capital was targeted in support of improved infrastructure and human resource development in Ireland (Harrison 1999, 605).

The economic, fiscal, and monetary integration of Western Europe, including the adoption of a common currency, required that the richest, most industrialized community members, such as Germany and France, transfer capital in support of the growth and development of poorer member ...