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9-706-007

REV: MARCH 10, 2010

LAURA ALFARO
VINATI DEV
STEPHEN McINTYRE

Forreign Direct
D
In
nvestm
ment an
nd Ireland's Tiiger
Eco
onomy (A)
The Worlds Best Coun
ntry, The Eco
onomist Intellligence Unit, 20051
In 1987, Ireland
d was the poo
orest memberr of the European Econom
mic Communiity (EEC, ren
named
the Eu
uropean Unio
on in 1993) an
nd stood on the verge of default. Debtt servicing co
onsumed a th
hird of
goverrnment reven
nues, and in
nvolvement by the Inteernational Monetary
M
Fun
nd (IMF) seeemed
immin
nent. Unemp
ployment topp
ped 17%, and
d gross domesstic product (G
GDP) per cap
pita was 69% of the
2 Em
EEC average.
a
migration wass a national epidemic,
e
and
d as universitty graduates flooded out of
o the
counttry by the tho
ousands in search of emp
ployment, Ireelands prospects seemed to disappearr with
them..
Ov
ver the next decade
d
Irelan
nd underwentt a startling economic
e
tran
nsformation. Between 1990 and
3
2000, GDP growth
h averaged 6.33%, with the highest grow
wthclose to 10%betweeen 1995 and 2000.
2
By th
hen, Irelands GDP per caapita had surrpassed the United
U
Kingd
doms, and un
nemploymen
nt had
plumm
meted to 5%.4 Fiscal surpluses becam
me the norm, the nationall debt all butt disappeared
d, and
emigrrants returned
d in droves. The extent of the revival was unprecedented in thee developed world
w
and earned Ireland
ds economy a nickname: th
he Celtic Tigeer.
Th
he resurgencee garnered a great
g
deal of attention
a
worlldwide. Scho
olars, journaliists, and politticians
sough
ht to identify a silver bullleta singlee underlying cause of the boom.
b
Some experts attrib
buted
the grrowth to poliicy initiativess such as colllective bargaining and ed
ducation reforrms, or exogeenous
factorrs such as EU transfers and
d favorable ex
xchange ratess. But many believed
b
the answer
a
was fo
oreign
directt investment (FDI), which
h swelled thro
oughout the 1990s, averaging over $22.5 billion perr year
durin
ng the latter part
p
of the deecade.5 (See Exhibits 1a and 1b for FDI
F flows in Ireland.)
I
By 2002,
Irelan
nd's per capita
a stock of FD
DI was the seccond highest in the world (after Hong Kongs) and twice
the EU
U average.6
In July 2003, the
t
Enterprisse Strategy Group
G
(ESG), an indepen
ndent body of academicss and
busin
ness leaders, was
w commissiioned by the Irish
I
governm
ment to reportt on the futurre of the econo
omy.7
The resulting repo
ort concluded
d that FDI did
d indeed play
y a major rolle: Irelandss performancee was
driven
n primarily by a relatively
y small numbeer of foreign-o
owned firms who chose Irreland as theirr base
for seerving Europeean markets. The effect of these firms on
o the econom
my was such that it maskeed the
generrally poor perrformance of the indigeno
ous sector, wiith the excepttion of a small number of highperforrming firms.
8
______________________
__________________________________________________________________________________________________
Professo
or Laura Alfaro, Reesearch Associate Vinati
V
Dev, and Steephen McIntyre (M
MBA 2005) prepared
d this case. HBS casses are developed solely
s
as
the basiss for class discussio
on. Cases are not in
ntended to serve ass endorsements, so
ources of primary data,
d
or illustration
ns of effective or ineeffective
management.
ght 2005, 2006, 2007, 2008, 2009, 20010 President and Fellows
F
of Harvard
d College. To ordeer copies or requesst permission to rep
produce
Copyrig
materialls, call 1-800-545-76
685, write Harvard Business School Publishing, Boston, MA 02163, or go to
o http://www.hbssp.harvard.edu. No
o part of
this pub
blication may be rep
produced, stored in
n a retrieval system
m, used in a spread
dsheet, or transmittted in any form or by any meanseleectronic,
mechanical, photocopying
g, recording, or otheerwisewithout th
he permission of Haarvard Business Sch
hool.

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Foreign Direct Investment and Ireland's Tiger Economy (A)

But by then, many experts feared that rising costs, labor shortages, skyrocketing housing prices,9
and a soaring euro had eroded Irelands competitiveness and threatened its export-fueled success.
There were concerns that as labor market pressures increased, real wages would grow faster than
underlying productivity, thereby reducing profits and the incentive for FDI. It also seemed likely that
grant incentives, which some argued had been essential in attracting FDI, would be reduced or
abolished. Since several regions in Ireland would no longer be categorized as Objective One
regions, the European Union was poised to significantly curb the level of grant aid that Ireland could
offer.10 In addition, while Ireland had agreed to retain a low corporate tax rate through 2010, there
was speculation that it would succumb to EU pressure11 to increase the tax rate. Others expressed
concern about increasing competition from the Eastern European countries, many of which were
aggressively pursuing foreign investments and reducing corporate tax rates.12
The new realities thus raised questions about whether Ireland could continue to attract significant
FDI. If the ESGs contention was correctthat growth was mainly due to FDIit would radically
alter Irelands policy response and other countries efforts to emulate the Celtic Tiger. Why was the
country so successful in attracting FDI? Was FDI really the driving force behind the boom? What
accounted for the economic growth? And, most importantly, could the boom be sustained?

Historical Background
Independence and Civil War
Modern-day Ireland was created in 1921, when, after a two-year War of Independence, Britain
and Ireland signed a peace treaty ending nearly eight centuries of British colonial rule. The treaty
partitioned the island broadly along religious lines into the Irish Free State, which comprised a
predominantly Catholic population, and Protestant-dominated Northern Ireland, which remained a
part of the United Kingdom (see Exhibit 2 for a map of Ireland). Under the treaty, the Irish Free State
was required to swear an oath of allegiance to the crown. Irish republicans fiercely opposed the
treaty, and a bloody civil war ensued.
In 1923, pro-treaty forces won the war, but Ireland emerged a wounded nation. The new
government inherited a severely underdeveloped infrastructure; basic services such as water and
electricity were lacking. Unemployment and emigration were high. Furthermore, the country had a
virtually nonexistent manufacturing sector. Though undeveloped, the economy was largely
agricultural and heavily dependent on trade with the United Kingdom. At first, Ireland pursued a
liberal trade policy, but this changed when the leader of the Fianna Fil political party, Eamon de
Valera, became prime minister in 1932.
After winning on a populist platform that emphasized national self-sufficiency, the de Valera
government introduced two acts that became symbols of economic, and to some degree political,
nationalism. Under the Finance Act of 1932, Irelands tariffs became twice as high as those in the
United States and 50% higher than those in the United Kingdom. The Control of Manufactures Act of
1932 required majority Irish ownership in new manufacturing ventures. The Wall Street crash and
Great Depression had provoked a worldwide resurgence in protectionism around this time, and de
Valeras policies drew widespread support. In a 1933 lecture at University College Dublin, John
Maynard Keynes said, If I were an Irishman I would find much to attract me in the economic
outlook of your present government towards self-sufficiency.13

Foreign Direct Investment and Ireland's Tiger Economy (A)

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Trade and FDI: The Role of Government


De Valeras government had set Ireland on a path of economic nationalism. But by the 1950s,
Irelands economic stagnation demanded change. A more pro-market agenda began to take hold
within the government, which subsequently passed a number of new laws designed to boost the
economy. The Finance Act of 1956 introduced export profits tax relief (EPTR). It provided for a 50%
tax exemption on profits earned from manufacturing goods, and was set to increase to 100% in
1958.14 The government also sent the message to the international community that Ireland was open
for business; in 1957, Ireland joined the World Bank and the IMF and relaxed restrictions on the
Control of Manufactures Act.
In 1958 the finance minister advocated a shift from protectionism to free trade and proposed that
the government encourage foreign investment through tax concessions and incentive grants. As a
result, between 1962 and 1964 Ireland unilaterally lowered tariffs. In 1965, the Anglo-Irish Free Trade
Agreement was concluded. With this agreement, Ireland hoped to achieve free trade of all
manufactured goods by 1975. Perhaps most significantly, Ireland joined the General Agreement for
Tariffs and Trade (GATT) in 1967.
The new economic programs of the 1960s brought some relief to Ireland. (See Exhibit 3 for GDP
data, Exhibit 4 for government finances, and Exhibit 5 for balance-of-payments data.) GDP growth
rates surpassed 4% annually, yet high unemployment and poverty continued to plague the nation,
and the education system was in a shambles. A 1965 report highlighted the high dropout rate and
the dilapidated condition of many schools. In 1968 the minister for education eliminated fees for
secondary education, raised the minimum school-leaving age from 14 to 15, and abolished the
primary certificate (a form of entrance exam for secondary schools). He also mandated the provision
of adequate sanitation and heating. These changes had an immediate impact on the numbers of
children entering secondary school.15

Industrial Development Authority


The Industrial Development Authority (IDA) was formed in 1949 as a government agency
promoting greater investment throughout Ireland.16 Further, in the 1960s and 1970s, as it became
apparent that the government favored an export-focused industrial strategy, the IDA found itself at
the center of this new policy environment. With business-friendly legislation as a backdrop, the IDA
set out to attract new investments from around the world. Ray Mac Sharry, minister of finance (1982,
19871988), and Padraic White, managing director of the IDA (19811990), acknowledged, It (the
EPTR) became the IDAs most distinctive investment incentive, and over time its most powerful
single weapon in the international industrial promotion battle.17
The IDA would have many wins in the 1960s. When the pharmaceutical giant Pzifer, in 1969,
decided to set up a plant in Cork, it was seen as a major victory for the IDA. However, it was unclear
whether it was the promotional efforts per se or Irish-American connections that had attracted Pfizer.
The IDA officials themselves acknowledged that the companys decision to set up a plant in Ireland
was largely due to the efforts of John Mulcahy, a man who had emigrated to America during the Irish
Civil War and at the time sat on the Pfizer Board with one-third of the companys shares.
Nonetheless, by the mid-1960s, Ireland was host to a number of foreign firms, including General
Electric. Recruiting such reputable firms gave Irelands efforts instant credibility, and it appeared that
a combination of factors, including the governments support for an export-oriented industrial
strategy, the IDAs promotional efforts, and American-Irish business ties were working in tandem.
Over the next 10 years, 450 foreign companies negotiated new projects or expansions with the IDA.

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Foreign Direct Investment and Ireland's Tiger Economy (A)

Yet, over the same period (as competition from Britain, France, and others intensified), the IDA
became aware that Ireland no longer had the investment promotion field all to herself.18
Undaunted, the IDA pursued an aggressive plan to position Ireland as the most profitable
destination in Europe. Its direct marketing campaign identified promising leads, and the IDA went
directly to those companies to make the case for locating in Ireland. The head of the IDAs research
and planning section in the early 1970s described the criteria for selecting companies as follows:
1.

Pick those that meet basic social and economic criteria such as not too capital intensive, high
male-labor content, high use of native raw materials and services, low scale factor.

2.

Pick those that offer the best chances of commercial stability and therefore economic stability,
by reference to commercial criteria such as high profitability. Pick those with strong growth
both in output and international trade.

3.

Pick those with high dependence on scarce human resources, such as skilled people, because
it implies a greater commitment and tie.

4.

Pick those that can take advantage of natural resources and therefore enable us to conserve
other resources.19

In 1971, the IDA set up task forces and sent executives out on the road to countries such as the
United States, Holland, and Sweden to present companies with detailed investment plans.
The IDA also forecasted profits to show companies that there was money to be made by
manufacturing in Ireland. In the first year, the IDA executives customized presentations to 105
companies. By 1973, the team had made 2,600 presentations to companies worldwide. By the mid1970s the IDAs efforts and the promises of the common market brought companies such as GilletteBraun, Digital, Cross Pens, Baxter Travenol, Syntex, Merck Sharpe, and Warner Lambert to Ireland.

The Turbulent Seventies


With its impending entry into the EEC, Ireland greeted the 1970s with optimism as it anticipated
gaining access to the EECs much larger market. Indeed, with one stroke of legislation, Ireland was
able to promise foreign investors a market of upwards of 200 million, as opposed to 3.6 million.
The year of membership, however, also brought the oil crisis of October 1973. Ireland, which
imported over 70% of its primary energy requirements, was thrown into turmoil. Moreover, a
structural shift in the economy transferred manufacturing growth from traditional indigenous
industries to largely foreign-owned and export-oriented modern industries. Foreign firms accounted
for less than one-third of total industrial employment in 1973 and simply did not have the capacity to
offset the job losses suffered by indigenous industry.20
The government was now faced with growing unemployment at home and quadrupling oil prices
on the international front. In order to stem the falling living standards, the Fine Gael-Labour
coalition launched an ambitious program of public spending, accompanied by major tax cuts. This
public-sector expansion was funded through borrowing. Gross expenditure on social welfare grew
from 6.5% of gross national product (GNP) to 10.5% from 1973 to 1977. (See Exhibit 4 for government
finances.) In 1977, the government was ousted in the general election, and Fianna Fail returned to
power. The new government inherited a large fiscal deficit but continued the trend of deficit
spending. In keeping with its election platform, the new government called for increased public
spending to lower unemployment and financing of this program by increased borrowing.
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By the 1970s, the IDA had secured an unprecedented volume of foreign investment, but persistent
unemployment called into question the success of Ireland's industrial policy. To make matters worse,
the 1979 oil crisis hit the country, plunging it into a deep recession.

The Question of Industrial PolicyIs FDI Working?


Despite the economic turbulence of the mid and late 1970s, FDI continued to grow. Nevertheless,
the IDA endured a steady stream of criticism that the agency-led foreign investment strategy had not
done enough to lift the economy. Critics wondered if foreign investors warranted the special
treatment they received, noting that despite growth in the pharmaceutical and electronics sectors, the
success of the foreign sector was not trickling down to the rest of the economy. They further charged
that linkages with foreign subsidiaries and local industry were limited. (See Exhibit 6 for linkages of
foreign firms in manufacturing.) As historian J.J. Lee put it, The native industry was resolutely
refusing to grow.21 Indeed, when Ireland joined the EEC in 1973, tariff reductions had exposed Irish
industry to unprecedented competition, triggering the widespread failure of indigenous firms.
The tide of condemnation eventually led the National Economic and Social Council to commission
the Telesis inquiry into Irelands industrial policy. The resulting 1982 report was not optimistic:
Foreign owned industrial operations in Ireland with a few exceptions do not embody key
competitiveness activities in which they participate; do not employ significant numbers of skilled
workers; and are not significantly integrated into traded and skilled sub-supply industries in
Ireland.22
The report stated categorically that the IDAs foreign investment promotion strategy was not as
successful as the organizations propaganda implied.23 On the contrary, the report alleged that
support for foreign firms on the whole, and in the electronics industry in particular, had been
excessive. As evidence for its claim, the report noted that only about 30% of the jobs announced by
the IDA ever materialized and that jobs created by foreign industries failed to make up for the jobs
being lost in traditional Irish industries. The authors went on to argue that no country had succeeded
in achieving sustained economic growth without a strong native industry and that for this to happen,
the Irish authorities had to insist that foreign companies establish research and development
activities in Ireland and favor local sub-suppliers.
The report did not completely blame the multinational corporations (MNCs) for the lack of
integration but acknowledged that MNCs had no choice but to source supplies from overseas, since
indigenous suppliers lacked essential technical and mechanical expertise.24 Specifically, the report
called for Ireland to work toward raising the proportion of funds allocated to indigenous export or
skilled supply firms from less than 40% . . . to 50% by 1985 and 75% by 1990.25
The report suggested that the government select 50 to 75 winnersIrish firms whose
management had already been deemed top qualityand prop them up to become internationally
competitive.26 The report recommended that weaker companies redeploy their skills toward exportoriented activity with the help of the IDA money.27 Finally, in what appeared to be a direct assault on
the IDA, the Telesis Report stated that the development effort to create a local industry must be
reorganized to emphasize the building of structurally strong Irish companies rather than strong
agencies to assist weak companies.28
The IDA disputed Telesiss claim that Irish incentives and support for foreign firms were
excessive. The IDA pointed to the arrival of big companies such as Apple, Bausch & Lomb, and
Fujitsu in 198029 as evidence that its strategy was working and blamed the governments
mismanagement of the economy, particularly the high inflation rates, for the depressed markets.

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Foreign Direct Investment and Ireland's Tiger Economy (A)

Whatever the cause, one historian noted that the efforts to build Irish industry had largely failed:
Sixty years after independence, fifty years after blanket protection . . . fifteen years after the
Anglo-Irish Free Trade Agreement, eight years after entering the EU, a native entrepreneurial
cadre of the requisite quality had failed to emerge. Irish-owned industry could not compete
internationally. It could not even compete on the home market. Neither carrot nor stick, neither
free trade nor protection, had sufficed to create a competitive native industry.30

The Eighties: Crisis and Change


Years of excessive government spending and high unemployment took their toll on Irelands
economy. By 1982, the deficit stood at 12% of GDP, and the current account deficit rose to a record of
21% of GDP. In 1983, when Black & Decker and AT&T-owned Telectron announced closures on the
same day, it seemed that even the foreign sector, which had thus far appeared resistant to the
macroeconomic crisis, had finally succumbed.31
By 1987 Ireland was deeply in debt and on the verge of economic collapse. Debt-to-GDP hit 122%,
the budget deficit ballooned to 12% of GDP, and unemployment was over 17%.32 The government
introduced widespread reforms, slashing government spending in an attempt to reduce the 22
billion-pound debt (1 Irish pound=1.27 euros). The prime minister explained: It is imperative that
we carry further the progress we have made so far this year in getting public expenditure under
control. Unless we achieve further significant cuts in expenditure the growth in public sector debt
will continue to be a burden on the economy, inhibiting economic growth and employment and
making it impossible for us to get development underway.33
Employers, farmers, and unions had all accepted the dismal economic scenario and recognized the
need for austere measures in the short term. The government took full advantage of this new
environment and forged social partnerships across the political and economic sectors. Aware that
these measures would cause considerable pain to the trade unions and their members, the
government offered tax reform as a compensating benefit. In 1987, the Program for National
Recovery (PNR)known as social partnershipwas created. The quid pro quo was pay restraint in
return for tax cuts. The net result, it was hoped, would be a real increase in take-home pay for
workers and reduced unemployment caused by rising competitiveness. The agreement also promised
that welfare would not have to bear a disproportional burden of the fiscal cuts. Before 1987,
productivity advances among foreign-owned firms prompted wage increases, which then spread to
the indigenous industries. PNR reversed this trend and allowed indigenous firms to lead wage
setting according to their slower productivity growth.
The IDA was determined to play a part in the economic recovery. It took advantage of PNR by
setting up a program designed to draw labor-intensive service businesses to Ireland. The IDA also
used a new advertising campaign to reposition Ireland: it introduced Ireland with the tagline, Were
the Young Europeans, noting that Ireland had the youngest population in Europe.34 The IDA also
shifted its emphasis from tax and financial incentives to an educated workforce and EU membership.
As a result of these efforts, the IDA drew a host of new firms to Ireland, including Motorola,
Teradata, Stratus, EDS, and Sandoz.
With the fiscal house coming to order and relative macroeconomic stability, the benefits of EU
membership began to be felt. The EUs main instrument for supporting social and economic
restructuring across the union was the Single European Act (SEA) of 1986. Through this act, the EU
made direct transfers to Ireland, providing farming subsidies and disbursing structural funds to be
used for infrastructure development. Irelands annual net receipts from the EU totaled about 6% of
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GDP from the mid-1980s to the mid-1990s, with roughly two-thirds farm related and one-third
structural.35 Although the absolute figures were high, it was estimated that the transfers contributed
less than 3% per year to Irelands GDP growth rate in the 1990s.36

The Nineties: The Emergence of the Celtic Tiger


By 1990, Irelands GDP growth rate reached 8.5%, and its volume of exports increased by 23.5%
from 1985 to 1990. Irelands competitiveness in the export market had been improved by broadly
favorable exchange rates throughout the late 1980s and into the 1990s. A 10% currency devaluation in
1986, coupled with the strength of the dollar and the pound sterling later in the decade, had further
boosted competitiveness. In 1996, the government eliminated third-level tuition fees in an effort to
further improve the quality of the labor force.
The 1990s were promising times for Ireland. Propelled in part by the American IT boom and the
formation of the single European market in 1992, the Irish economy grew rapidly and attracted
unprecedented levels of foreign investment. Furthermore, fiscal discipline and reforms, imposed by
the Maastricht criteria in 1992, had resulted in lower deficits and debt-to-GDP ratios. Finally, a
revaluation of the Irish pound upon Irelands joining the European Monetary System (EMS) made
Irelands export sector more competitive.
The IDA, aware of EU pressures to increase taxes, had begun lobbying the government to prolong
the tax rate. The IDA had conducted studies demonstrating that the low 10% manufacturing tax rate
was essential for Ireland to retain its competitiveness relative to other European countries. In 1990
the government extended the 10% rate through 2010.
The combination of low corporate tax and ready access to the European market made Ireland an
attractive option.37 Industries with high operating margins, like pharmaceuticals, were particularly
drawn by the low tax environment. Several EU countries were critical of Irelands corporate tax
policy, especially when Ireland began to win sizable portions of FDI from the United States. Some
believed that a race to the bottom would develop in Europe, with tax cuts replacing devaluations as a
competitive device. But Kieran McGowan, IDA CEO from 1989 to 1999, described the problems other
countries would face if they dropped corporate taxes to Irish levels: They find it hard to replicate
our tax policy because they have a large corporate tax revenue stream to begin with. We in Ireland
didnt have a corporate sector, so we had nothing to lose.38
In the meantime, foreign firms continued to open plants in Ireland, largely due to the IDAs ability
to identify and lure target companies (see Exhibit 7a for a survey of the economic impact of IDAsupported companies, Exhibit 7b for their countries of origin, and Exhibit 7c for the IDAs regional
offices). International employees spent much of their time making and developing senior contacts in
target companies, and the IDA used its on-the-road staff to gather intelligence about market trends.
The IDAs annual conference was a key event for consolidating feedback and identifying new trends
and patterns. The arrival of computer giant Intel in 1990 was a massive victory for Ireland in general
and for the IDA in particular and exemplified the IDAs persistence and imagination. The agency
first contacted Intel executives in the late 1970s and nurtured the relationship for more than a decade
until conditions were more suitable for investment. The IDA offered Intel a grant package of $157
million, spread over 10 years. But Intel was concerned about the absence of a sufficient supply of
experienced engineers. The IDA came up with a plan to address Intels concern: McGowan compiled
a list of Irish engineers working at semiconductor businesses, mainly in the United States, who would
be willing to return to Ireland. As McGowan put it, We presented a booklet to Intel with the names,
addresses and phone numbers of 85 people. And I think that impressed them.39 The hard work paid
off, and Intel chose Ireland over Scotland as a location for both its computer system and
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semiconductor facilities. At the IDA, 1989, the year of the announcement, came to be known as the
year of Intel.40 By 2004, Intel employed approximately 5,000 people in Ireland.
Over the next few years, almost every major computer company arrived in Ireland: Dell, Gateway,
Hewlett-Packard, and IBM all started production. Irelands share of FDI inflows into the EU tripled
between 1991 and 1994, as the country attracted approximately 40% of U.S. electronics investments in
Europe.41 As Michael Dell, founder of Dell Computer, explained in a recent newspaper article:
What attracted us? [A] well educated work force and good universities close by. [Also,]
Ireland has an industrial and tax policy which is consistently very supportive of businesses,
independent of which political party is in power. I believe this is because there are enough
people who remember the very bad times to de-politicize economic development. [Ireland also
has] very good transportation and logistics and a good locationeasy to move products to
major markets in Europe quickly.42
The IDA was also responsible for recognizing Irelands potential as an offshore call center during
an overseas intelligence-gathering mission in the early 1990s. The IDA negotiated a deal with the
national telecom company to slash international call rates in return for increased call volumes, and it
compiled a list of multilingual workers in order to demonstrate an adequate supply of labor.43
Ireland built on its first-mover advantage and became the location of choice for pan-European
customer contact centers.

The Role of FDI: The Debate


The massive inflow of direct investment has been the major positive shock influencing the
economy in the 1990s. . . . Irelands share of OECD total inflows surged in 1990s, reaching a level out
of all proportion with its GDP share.
Organization for Economic Cooperation and Development (OECD), Economic Survey, 1999
By the early 1990s, the success of the foreign sector was evident, and it became widely accepted
that the spectacular rise in Irish exports had come almost entirely from aggressive export-oriented
foreign firms. It was also apparent that indigenous exports had stayed flat in real terms and that the
domestic economy had generally lagged behind. Critics blamed the FDI-led policy responsible for
this change and pointed to several statistics to support their claim. Most notably, there was a high
level of unemployment, which ranged between 14% and 16% through the early 1990s.44 Some
claimed that this was a by-product of a jobless-growth phenomenon that accompanied the FDI-led
policy. They also pointed to the yawning gap between Irelands GDP and GNP,45 which they argued
demonstrated that foreign companies exported profits. As further evidence of the lack of linkages
between domestic and foreign firms, they pointed out that the investment share of Irish national
income had shrunk significantly in the early 1990s.
While there was growing evidence that FDI played a crucial role in the Celtic Tigers growth, it
was increasingly acknowledged that the foreign sector had limited ties with local businesses and that
an FDI-focused policy had yielded little in terms of creating a vibrant domestic economy. In reaction
to this growing criticism, the government split the IDA into two separate entities in 1994. IDA Ireland
continued to focus on attracting foreign direct investment, while Enterprise Ireland concentrated its
energies on developing indigenous industries. Both organizations reported to Forfs, the national
policy and advisory board, an umbrella organization through which powers were delegated to IDA
Ireland and Enterprise Ireland.
In 1998 Enterprise Ireland launched the National Linkage Program (NLP).46 Under the program,
NLP representatives would determine a foreign companys sourcing needs and match them with a
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potential supplier. However, as it became increasingly clear that local suppliers were simply unable
to meet foreign standards, the NLPs focus shifted to one of a capacity-building role. Despite the
NLPs best efforts, surveys evaluating the program concluded that a ceiling of about 20% of material
purchases from within Ireland had been reached. Furthermore, these surveys suggested that it was
highly unlikely that this ceiling would be broken, given the inability of local suppliers to produce
goods and services for the sophisticated technology sector. The program was scrapped by the end of
the decade, vindicating some observers who questioned the long-term benefit of FDI-led growth. As
Sean Dorgan, CEO of the IDA, noted, Perhaps in the past we focused too explicitly on creating
linkages. There was an air of protectionism about it. Linkages were hard to measure, but the IDA
used as a proxy foreign companies direct expenditure in the economy.47 The debate on the question
of linkages, which had been at the center of FDI policy in Ireland, was particularly contentious
because some believed that linkages alone would spur job growth and the development of a local
sub-supplier industry. But some studies concluded that foreign firms tended to have lower linkages
than domestic firms and that there were sectoral differences in the extent of linkages created.48
Academics who analyzed the interaction of foreign and domestic Irish firms claimed that, in fact,
there was little product-market competition between the two. The reason behind this, they argued,
lay in the different origins and structures of foreign and domestic firms. Foreign firms were largely
focused on export markets beyond the U.K., and 80% of their exports came from the chemicals and
pharmaceuticals sectors; domestic firms, on the other hand, continued to export primarily to the U.K.,
and only 10% of their exports came from the chemicals and pharmaceuticals sectors.49 While the
linkages question continued to be debated in Irish policy circles, by the mid-1990s, the falling
unemployment rate seemed to vindicate the FDI supporters. In 1998, statistics showed that 47% of
the industrial workforce (generating 82% of industrial output) was employed by foreign-owned firms
and that some 75% of this FDI came from the United States. Furthermore, data also showed that U.S.
foreign affiliates were responsible for 16.5% of Irelands GDP.50
With new employment data as another measure of success, FDI supporters continued to
emphasize the positive impact of foreign firms on the Irish economy. Amongst other benefits,
supporters pointed out that FDI had brought in substantial corporate tax revenues and additional tax
revenues from income tax and indirect taxes.51 They also pointed out that given the small size of the
Irish economy, even the launch of a single new product by an MNC would have a positive effect on
economic growth; for example when Pfizer introduced its Irish-produced Viagra, the Irish output of
organic chemical products rose by 70%.52
Macroeconomic data also supported their claims. Between 1995 and 1999 MNCs directly
accounted for 85% of economic growth,53 though this growth was largely concentrated within three
manufacturing sectorschemicals, computers, and electrical engineering (see Exhibit 8 for
manufacturing ownership and output data). Furthermore, by the late 1990s, Ireland boasted all the
big names in the IT industry: Gateway, Dell, AST, Apple, Hewlett-Packard, and Siemens Nixdorf in
PCs; Intel, Fujitsu, Xilinx, and Analog Devices in integrated circuits; Seagate and Quantum in disk
drives; and Microsoft, Lotus, and Oracle in software (see Exhibit 9 for software industry statistics).
Together these sectors alone accounted for 40% of Irish GDP growth during the 1990s and for 78% of
industrial growth in 1998.54
While rising FDI had been the theme of the 1990s, the global downturn of 2001 contributed to a
large reduction in FDI inflows in Ireland. A 13% job loss at IDA-supported companies accompanied
this downward trend and subsequently raised concerns about Irelands vulnerability to external
forces (see Exhibit 10 for employment in IDA-supported companies and Exhibit 11 for wages in
Ireland). While many saw Irelands reliance on foreigners as a serious threat, Dorgan claimed it was
the inevitable result of globalization. He explained, Our open economy reduces the distinction

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

between foreign and Irish firms. Global supply is now the reality.55 Ireland had certainly embraced
globalization, topping A.T. Kearneys Globalization Index from 2002 to 2004. Nonetheless, others
refuted Dorgans rationale. Frank Kenny, founder of Delta Partners and a member of the ESG, said:
The standard line about globalization making global and local firms the same is basically
untrue. For example, the senior management of CRH56 is based in Ireland, so the major
decisions are made by people who live and work here. Their kids go to school in Ireland, and
they will fight harder to make money here. The fact that CRH is a public company with
majority foreign ownership is largely irrelevant.
As FDI dependency and vulnerability entered the narrative of the debate, some commentators
worried that the boom was purely a by-product of American growth rather than a self-sustaining,
local phenomenon. According to them, Irelands success at attracting U.S. high-tech companies to its
shores in the 1990s coincided with the longest bull market in American history and unparalleled
booms in many of the industries targeted by the IDA. Ireland piggybacked on this growth, which led
to claims that the Celtic Tiger itself was an illusionthat Irelands growth was primarily caused by
its attachment to the powerhouse U.S. economy.
A journalist lamented Irelands overdependence: The fact that were too reliant on the U.S. is a
truism. Were totally plugged into the American economy, and our dependence is made worse by
linkages. If Dell pulls out of Ireland, the local haulage company that serves it is in trouble. Many
local companies rely on foreign firms for oxygen.57
Other attempts to explain the Irish boom focused on the catch-up theorythe inevitable result of
prudent economic policies after decades of mismanagement. Worse, some declared the boom to be a
chimera born of shady transfer pricing. Low corporate tax rates enticed multinationals to inflate the
profits of their Irish subsidiaries. This was often accomplished by booking internal transactions at
transfer prices that served to locate a large percentage of the firms global profits in Ireland.58 Some
observers believed such practices exaggerated Irelands GDP figures to such an extent that they
rendered its economic performance entirely misleading. Others countered that growth ratesas
opposed to absolute output levelsremained largely unaffected by transfer-pricing issues. Brian
Cogan of Forfs denied the notion that the boom was a fabrication: Transfer pricing alone would
just show up as money flowing in and then out again. It wouldnt explain the decreased
unemployment, increased skill level of workers, and higher income levels in the country.59
Although the impact on Irish GDP was hard to quantify, it was notable that four thriving FDI
sectorscola concentrates, software, pharmaceuticals, and computerswere particularly well placed
to benefit from transfer pricing.60

The Future of the Irish Economy


The Celtic era, with double-digit growth rates, belongs to the past. Competitiveness has deteriorated.
OECD Economic Outlook, December 2003
As the new decade dawned, a global slowdown, caused mainly by the American recession, had
put the brakes on the Irish economy for the first time in 11 years. The IDA announced record job
losses in foreign-owned companies, and the numbers employed in the IT sector fell 11% in 2001 after
several high-profile closures, including those of Motorola, Gateway, and General Semiconductors.61
Ireland faced the threat of new competition from countries in eastern Europe as well as constant
pressure from the EU to increase the corporate tax rate, which rose from 10% to 12.5% in 2003 (see
Exhibit 12 for comparative European corporate tax rates and Exhibits 13a and 13b for comparative
economic data). While this tax rate was still one of the lowest in Europe, it raised the specter of
10

Foreign Direct Investment and Ireland's Tiger Economy (A)

706-007

future tax increases and called into question the sustainability of the low tax rate. Some scholars
suggested that as much as 80% of Irelands FDI inflow was due to its low corporate tax rate,62 a
contention forcefully refuted by an official at Forfs, who noted, Tax was hugely important, but it
wasnt enough on its own.63
Ironically, Irelands economic success of the 1990s had eroded many of its former competitive
advantages. Inflation ran well above the EU average, making it the second most expensive country in
the Eurozone (after Finland) and prompting widespread use of the term Rip-off Ireland by the
public and media. Ireland had become an expensive place to do business. Even substantial
immigration could not prevent labor shortages, which in turn drove up private-sector wages and put
pressure on unions to respond. Fears abounded that social partnership would collapse as unions
sought their share of the new wealth. McGowan explained how the backdrop had changed: In the
1980s, everyone could agree on the need to reduce unemployment. Its not so clear now that people
will subordinate their own interests for the national well-being.64
The IDA swiftly began to reposition the country, using Irelands EU membership, educated
workforce, and its low wages and tax rate as major selling points. The IDA wanted to place Ireland
at the leading edge of the global economy . . . and [adopt a] broader vision of what constitutes FDI,
with less emphasis on job numbers, and a much greater focus on job quality, higher value added
activities, and making Ireland a centre for innovation and the strategic management of value chains,
rather than just a manufacturing or basic service location.65 The objective was to reduce Irelands
dependence on manufacturing by targeting underrepresented portions of the value chain such as
research and development (R&D), sales, and marketing. The ESG outlined the considerable challenge
ahead: Much of the foreign-owned sector is, by global standards, still positioned at a relatively low
point in the value chain. The research and development, marketing and other capabilities that
underpin the competitive strength of these enterprises are not for the most part located in their Irish
operations.66
Prying such activities away from corporate headquarters would not be easy. The IDA believed
companies tended to keep R&D close to home, and Ireland did not have an international reputation
as a research hub. Furthermore, its peripheral location isolated it from large markets, making sales
and marketing more difficult.
Despite the challenges, the IDA was successful in winning approximately 10% of American FDI in
Europe in 2003.67 Once momentum developed in a sector, reference selling made it easier to
convince the next player to move to Ireland. By 2004, 13 of the worlds top 15 pharmaceutical
companies had bases in Ireland, 16 of the top 20 medical-device companies, and 7 of the top 10
software designers.68
There were some high-profile successes in the technology sector as well. Shortly before going
public in 2004, Google established its European headquarters in Dublin. Although the companys
celebrated product development function remained in Silicon Valley, the Irish office gained
responsibility for online sales and operations in the Europe, Middle East, and Africa markets. A
Google manager explained the move:
There were two determining factors: low tax and a multilingual labor force. Ireland
provided a very favorable tax environment, as did Switzerland and the Netherlands, and we
were very impressed with the number of different languages available. We could get
languages in Switzerland too, but at a much higher labor cost. We didnt feel we could get the
same variety of languages in the Netherlands. Furthermore, the IDA was tremendously
supportive throughout.69

11

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

At about the same time, Wyeth, the $16 billion U.S. pharmaceutical company, announced plans to
invest 1.5 billion euros in an R&D operation in Ireland, helped in part by a new tax concession for
R&D investments introduced by the government in 2004. The development of clusters70 and stronger
links between universities and businesses was seen as crucial to creating a fertile R&D environment,
and Science Foundation Ireland (SFI) was established in 2003 to encourage cooperation between
education, government, and industry. SFI planned to invest $652 million between 2000 and 2006 in
academic researchers and research teams in two fields: biotechnology, and information and
communications technology.71
The IDA was central to these developments, but some commentators wondered if the agency was
overstretching itself. Its raison dtre had always been to create jobs, and its success could therefore be
easily measured. In an era of full employment, however, the emphasis had shifted from quantity to
quality of jobs, and it became harder to assess the IDAs performance. Moreover, the EU was
expected to impose limits in 2006 on state aid to firms, thereby removing one tool at the IDAs
disposal. More troubling still, the 10 new entrants to the EU threatened Irelands status as the
European export platform of choice. Their low costs and plentiful labor contrasted starkly with the
new Ireland. Even Irelands language advantage was neutralized by the prevalence of English
throughout eastern Europe. Irelands tax edge was also under fire, with pressure from Brussels to
harmonize corporate taxes throughout the EU, as many Eastern European countries, such as Slovakia,
were adopting low tax rates.

Looking Ahead
Irelands performance since 1987 had been extraordinary, but future growth was expected to be
more modest. An IDA economist remarked: We threw four aces in a row in the 1990s and that
wont happen againbut it doesnt have to happen again.72 Although the Irish had become
accustomed to economic success, Dorgan denied that complacency was inevitable: Perhaps all rich
countries get fat and lazy. But I believe we still have the hunger.73
Identifying the cause of the boom was crucial to sustaining it, and Irelands future depended on
the lessons learned from the Celtic Tiger years. If growth had been driven by FDI, as the ESG
believed, then perhaps the focus should continue to be on attracting better investment from abroad.
But what if FDI had not been the primary cause? Was Ireland too dependent on foreigners? Could
scarce resources be better spent on reforming education, improving infrastructure, or encouraging
indigenous enterprise? Policymakers had many choices going forward.

12

Foreign Direct Investment and Ireland's Tiger Economy (A)

706-007

FDI Flows in Ireland, by Type of Investment, 19742001 (US$ millions)

Exhibit 1a
Year

1975

1980

1985

1990

1995

2000

2001

2002

2003

2004

Inward Investment
Equity
Reinvested Earnings
Other
Total

n.a.
n.a.
158
158

n.a.
n.a.
287
287

n.a.
n.a.
164
164

n.a.
660
-33
628

n.a.
2006
-560
1447

-12728
9698
28530
25501

8879
9267
-8573
9573

13771
13796
1564
29131

6240
19370
989
26599

-8911
11345
8918
11352

Outward Investment
Equity
Reinvested Earnings
Other
Total

n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

n.a.
365
n.a.
365

n.a.
820
n.a.
820

3501
1293
-154
4641

1427
2016
660
4103

9033
2141
-2650
8524

714
2675
139
3528

n.a.
n.a.
6565
6565

Source: Adapted from United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment (FDI)
database.

Exhibit 1b

Ireland: Foreign Direct Inflows (US$ millions)

27,500

22,500

17,500

12,500

7,500

2,500

1970

1975

1980

1985

1990

1995

2000

-2,500

Source: Adapted from UNCTAD, FDI database.

13

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 2

Source:

14

Ireland

CIA World Factbook, CIA website, http://www.cia.gov/cia/publications/factbook/geos/ei.html.

2.8
n.a.

6.5

5.8

..
..

869
1,917
4897

21.6
n.a.
n.a.
74.7
14.5
20.5

3.0
n.a.

9.8
6.1
10.3
5.3

2,231
4,217
7095
4.1
..
..

22.3
n.a.
n.a.
69.3
23.8
34.6

Note:

3.4
n.a.

35.7
14.6
37.1
14.1

12,891
20,863
9774
3.1
5605
5600

25.9
27.4
-8.3
65.4
30.4
40.8

36,080
9,352
9,895
-2,989
23,592
10,963
14,734

1980

3.5
16.7

59.9
10.9
66.2
12.3
100.0

24,500
20,404
10650
1.7
8519
7870

23.9
22.3
-2.2
58.6
39.6
42.1

40,919
9,760
9,120
-911
23,995
16,191
17,235

1985

70.5
3.3
77.9
3.3
118.0
3.4
3.5
13.0

36,312
47,299
13533
4.9
12720
11710

18.3
23.4
1.7
55.4
48.1
46.9

51,497
9,425
12,044
887
28,547
24,771
24,177

1990

81.3
2.9
88.2
2.5
133.7
2.5
3.6
12.2

52,530
66,326
16521
4.1
17816
16130

16.7
20.5
1.3
51.5
69.9
59.9

64,589
10,786
13,237
856
33,249
45,178
38,717

1995

100.0
4.2
100.0
2.5
163.3
4.1
3.8
4.3

103,065
94,956
24902
8.6
30532
26400

14.0
25.4
0.8
46.7
97.7
84.5

103,065
14,391
26,140
780
48,144
100,720
87,110

2000

105.7
5.7
104.9
4.9
168.1
2.9
3.9
3.7

115,432
103,295
26046
4.6
33348
28280

14.7
23.1
1.0
46.4
99.9
85.1

109,257
16,019
25,253
1,091
50,665
109,170
92,941

2001

110.4
4.5
109.8
4.7
174.3
3.7
3.9
4.2

127,992
120,452
27184
4.4
36264
30000

15.0
22.2
1.3
44.8
99.5
82.8

115,958
17,359
25,771
1,512
51,999
115,365
96,047

2002

All raw data has been taken from the WDI database. Expenditure as a percentage of GDP as well as change in inventories has been manually calculated.

Source: Adapted from World Development Indicators (WDI), World Bank.

Other Data
GDP deflator (2000 = 100)
Annual % change
Consumer price index (2000 = 100)
Annual % change
Productivity Index (1985=100)
Annual % change
Population, total (millions)
Unemployment, total (% of total labor force)

GDP (current LCU, millions)


GDP (current US$, millions)
GDP per capita (constant 2000 US$)
GDP per capita growth (annual % change)
GDP per capita, PPP (current international $)
GNI per capita, PPP (current international $)

as a % of GDP
General government final consumption
Gross capital formation
Change in Inventories
Household final consumption
Exports of goods and services
Imports of goods and services

1970

15,062 18,093
3,259
5,067
n.a.
n.a.
n.a.
n.a.
11,255 13,159
2,179
5,396
3,089
7,850

1960

National Accounts and Other Economic Data

GDP (constant LCU, millions)


General government final consumption
Gross capital formation
Change in Inventories
Household final consumption
Exports of goods and services
Imports of goods and services

Exhibit 3

112.1
1.6
113.6
3.5
177.6
1.9
4.0
4.4

134,786
152,129
27715
2.0
37171
31150

14.8
22.5
1.1
44.4
95.2
78.1

120,195
17,816
27,092
1,349
53,343
114,468
93,872

2003

2005

-15-

n.a.
n.a.
n.a.
n.a.
n.a
n.a

116.0
3.5
116.1
2.2
181.9
2.4
4.1
4.4

119.7
3.1
118.9
2.4
187.0
2.8
4.2
n.a.

146,279 157,915
181,623 196,388
28546 29295
3.0
2.6
38827 40942
32930 34720

14.5
23.1
0.4
43.7
94.8
76.5

126,051 131,975
18,340
n.a.
29,056
n.a.
483
n.a.
55,053
n.a.
119,500
n.a.
96,381
n.a

2004

706-007

706-007

Exhibit 4

Foreign Direct Investment and Ireland's Tiger Economy (A)

Government Finances (billions of Irish pounds)

Year

1980

1985

Budget revenue
Budget expenditure
Budget balance
Debt interest payments
Primary balance
Public debt

4.7
6.0
-1.3
0.5
-0.8
8.3

10.4
12.9
-2.5
1.6
-0.8
n.a.

14.7
15.7
-1.0
2.2
1.2
34.6

20.8
21.9
-1.1
2.1
1.0
44.6

37.5
33.0
4.6
0.9
5.5
43.3

39.8
38.7
1.1
0.2
1.3
42.2

43.1
43.3
-0.2
0.2
0.0
43.5

46.5
46.3
0.2
0.3
0.5
43.5

49.8
49.6
0.2
0.3
0.5
44.3

As a % of GDP
Budget revenue
Budget expenditure
Budget balance
Debt interest payments
Primary balance
Public debt

4.3
-6.2
66.4

43.5
53.8
-10.3
6.8
-3.5
n.a.

40.4
43.2
-2.8
6.2
3.4
95.4

39.4
41.5
-2.1
4.0
1.9
84.7

36.4
32.0
4.4
0.9
5.3
42.1

34.5
33.5
1.0
0.2
1.1
36.6

33.7
33.8
-0.2
0.2
0.0
34.0

34.5
34.3
0.2
0.2
0.4
32.3

34.1
33.9
0.2
0.2
0.3
30.3

Exchange rate
Pound:US$ (av)

0.72

1.31

0.79

0.76

1.08

1.12

1.06

0.88

0.80

Source: Adapted from Economist Intelligence Unit.

16

1990

1995

2000

2001

2002

2003

2004

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 5

706-007

Balance of Payments (US$ billions)


1975 1980 1985 1990 1995 2000

2001

2002

2003

2004

2005

3.0
8.2
-3.5 -10.5
-0.5 -2.2
0.6
1.4
-0.5 -1.6
-0.5 -2.4
0.3
0.8
-0.4 -1.7

10.1 23.3 44.4 73.5


-9.5 -19.4 -30.9 -48.5
0.6
3.9 13.6 25.0
1.3
3.4
5.0 18.5
-1.5 -5.2 -11.3 -31.3
0.4
2.2
7.3 12.3
0.8
3.3
5.1 27.6
-2.9 -8.2 -12.4 -41.2

77.6
-50.4
27.3
23.5
-35.3
15.4
28.9
-45.2

84.2
-50.8
33.4
29.9
-42.8
20.5
27.2
-49.5

88.6
-51.7
36.9
42.1
-54.6
24.3
34.1
-58.9

100.1
-61.1
39.0
52.7
-65.4
26.3
43.5
-71.4

104.1
-67.3
36.8
57.3
-69.8
24.3
53.9
-84.2

-0.5
0.4
-0.1

-3.3
1.2
-2.1

-1.7
1.0
-0.7

-2.7
2.4
-0.4

-0.1
1.8
1.7

-1.3
0.8
-0.5

-1.0
0.3
-0.7

-1.8
0.7
-1.1

-0.4
0.5
0.1

-1.6
0.5
-1.1

-6.0
0.7
-5.3

0.0

0.0

0.1

0.4

0.8

1.1

0.6

0.5

0.1

0.4

0.3

Direct Investment Abroad


Direct Investments in Rep. Econ
Portfolio Investments, Assets
Portfolio Investments, Liabilities
Other Investments Assets
Other Investments Liabilities
Other, Net
Financial Account, N.I.E.

0.0
0.2
0.0
0.1
-0.5
0.7
0.0
0.5

0.0
0.3
0.0
0.2
-0.5
2.8
0.0
2.7

0.0
0.2
-0.1
1.1
0.0
-0.1
0.0
1.1

-0.4 -0.8 -4.6


-4.1 -11.1
-5.6 -18.1
0.6
1.4 25.5
9.6
29.5
22.4 -11.0
-0.5 -1.1 -83.1 -111.3 -105.5 -163.8 -168.9
0.3
0.8 77.9
89.1
69.4 119.4 186.5
-5.3 -16.6 -37.0 -21.4 -33.2 -65.9 -57.4
3.2 16.2 28.9
37.9
49.8
90.5
71.2
0.0
0.0
0.4
0.4
1.6
-0.5
1.0
-2.0
0.0
7.9
0.0
0.5
-3.5
3.3

-13.8
-29.7
-148.4
213.5
-134.1
117.7
-8.2
-3.0

Net Errors and Omissions


Reserve Assets

0.0
-0.3

0.1
-0.7

-0.4
0.0

2.6
-0.6

-1.4
33.3
-38.7
-5.3

Goods Exports
Goods Imports
Trade Balance
Services: Credit
Services: Debit
Balance on Goods and Services
Income: Credit
Income: Debit
Balance on Goods and Services
and Income
Current Transfers, Net
Current Account
Capital Account, N.I.E.

Balance of Payments as a % of GDP


Current Account
Goods Exports
Goods Imports
Trade Balance
GDP (current US$ Billion )

-0.2
-2.3

-8.5
-0.1

0.4
-0.4

-0.2
0.3

1.4
1.9

-4.0
1.4

6.2
1.8

-10.2
39.4
-50.1
-10.7

-3.6 -0.8
2.6 -0.5
49.7 49.3 67.0 77.4
-46.6 -41.0 -46.5 -51.1
3.1
8.3 20.4 26.3

-0.7
75.1
-48.8
26.4

-0.9
69.9
-42.1
27.8

0.1
58.2
-34.0
24.2

-0.6
55.1
-33.6
21.5

-2.7
53.0
-34.3
18.7

9.1 20.9

20.4 47.3 66.3 95.0

103.3

120.5

152.1

181.6

196.4

Source: Adapted from IMF, International Financial Statistics database, and World Development Indicators (WDI), World
Bank.

17

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 6 Linkages of Foreign Firms in Manufacturing: Irish Raw Materials as a Percentage of Total
Raw Material Purchases

Nonfood manufacturing
(millions)

1986

1989

1992

1995

16.2%
353

16.5%
546

19.2%
734

19.8%
1,326
st

Source: Adapted from Forfs, Shaping Our Future: A Strategy for Enterprise in Ireland in the 21 Century, 1996.
Note:

Excluding food, drink, and tobacco.

Exhibit 7a

Survey of Economic Impact of IDA-Supported Companies (euro billions)

Survey

1999

2000

2001

2002

Sales
Exports
Direct expenditure in the economy
of which:
Payroll costs
Irish materials
Irish services
Direct expenditure as % of sales

42.9
38.2
11.6

64.02
58.22
14.26

67.79
63.14
14.93

69.34
65.17
14.73

4.0
4.7
3.0
27.1

5.04
4.28
4.94
22.30%

5.44
4.51
4.98
22.00%

5.34
4.38
5.01
21.20%

Source:

Adapted from the Annual Business Survey of Economic Impact, coordinated by Forfs and
administered by the Survey Unit of the Economic and Social Research Institute (ESRI).

Note:

The survey is based on manufacturing and internationally traded services companies with 10 or more
employees (excluding IFSC companies). Results can vary from previous estimates due to revisions
made by companies and differences in the base of respondents from one survey period to the next.

Exhibit 7b

Origins of IDA-Supported Companies, 2003


No. of
Companies

Origin
U.S.
Germany
U.K.
Rest of Europe
Asia Pacific
Rest of the World
Total
Source:

18

Total
Employment

489
149
118
214
44
40

89,158
11,394
8,086
15,602
2,937
1,816

1,054

12,8993

Adapted from the Annual Business Survey of Economic Impact, coordinated by Forfs and
administered by the Survey Unit of the Economic and Social Research Institute (ESRI).

IDA Presence: Domestic and International

Source: IDA Ireland website, http://www.idaireland.com/home/index.aspx?id=81, accessed July 17, 2005.

Exhibit 7c

706-007

-19-

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 8

Total Manufacturing

Nationality of Ownership

No. of
Plants

Total Persons
Engaged

Gross
Output

Percent of
Imported
Materials
Purchased

Irish
Other EU
of which U.K.
of which Germany
Non-EU
of which U.S.
Total foreign
Total

3,854
318
112
100
372
267
690
4,544

111,167
33,345
12,763
10,866
55,491
42,806
88,836
200,003

10,379
3,373
1,575
636
11,152
8,814
14,525
24,904

21.7
58.4
45.1
79.6
68.0
64.3
65.6
42.3

Percent of Gross
Output Exported
35.3
61.9
39.0
92.3
92.8
96.0
85.6
64.7

Source: Census of Industrial Production. Adapted from Frank Barry and John Bradley, FDI and Trade: the Irish host-country
experience, paper presented at the Royal Economics Society Annual Conference, University of Staffordshire,
March 2426, 1993.

Exhibit 9

Software Industry Statistics, 19911997

Total
Total Number of Firms
Irish Owned
Foreign Owned

1991
Percent

Total

1993
Percent

Total

1995
Percent

Total

1997
Percent

365
291
74

100%
80%
20%

417
336
81

100%
81%
19%

483
390
93

100%
81%
19%

679
561
118

100%
83%
17%

Total Employment
Irish Owned
Foreign Owned

7,793
3,801
3,992

100%
49%
51%

8,943
4,495
4,448

100%
50%
50%

11,784
5,773
6,011

100%
49%
51%

18,300
9,200
9,100

100%
50%
50%

Total Revenue ($M)


Irish Owned
Foreign Owned

2,699
234
2,465

100%
9%
91%

3,107
368
2,739

100%
12%
88%

4,735
610
4,125

100%
13%
87%

6,245
739
5,506

100%
12%
88%

Total Exports ($M)


Irish Owned
Foreign Owned

2,510
95
2,415

100%
4%
96%

2,872
181
2,691

100%
6%
94%

4,442
357
4,085

100%
8%
92%

5,908
511
5,397

100%
9%
91%

Source:

20

Adapted from Paul. P. Tallon and Kenneth. L. Kraemer, The Impact of Technology on Ireland's Economic Growth
and Development: Lessons for Developing Countries, proceedings of the 32nd Hawaii International Conference on
System Sciences, 1999.

7,075
857
76,218
1,200
1.60%
-5,875
7.70%
4,288

1992
8,216
876
78,915
2,697
3.50%
-5,519
7.00%
5,334

1993
9,961
908
85,597
4,493
6.30%
-5,468
-6.40%
9,022

1994
11,958
961
92,424
6,827
8.00%
-5,131
-5.60%
11,579

1995
13,220
1,037
99,583
7,159
7.70%
-6,061
-6.10%
9,488

1996
14,685
1,099
108,231
9,648
9.70%
-5,037
-4.60%
13,540

1997
15,946
1,158
117,864
8,633
7.90%
-7,313
-6.20%
15,195

1998

2712.8
2712.8
348.3
59.5
44.5
158.4
466.2
74.5
36.9
82.7
134.8
827.7
287.3
136
53.1
2.9

al

12,802
1,148
136,277
-4,848
-3.40%
-17,650
-13.00%
12,395

2001

11,059
1,102
132,004
-4,273
-3.10%
-15,332
-11.60%
12,362

2002

ld
or

-21-

9,182
1,054
128,993
-3,011
-2.30%
-12,193
-9.50%
14,577

2003

es
ds
ed
ed
d s
at
i
t
n
e
n
k
y
f
fi
e
S
r
a
la
n
n
m
ci
om eci
ca d a
a
r
e
op tri
a
d
i
e
d
e
e
u
l
n
d
e
p
i
c
n
m
e
n
p
p
th e r a
te g
m
te
h
ed
ro nio elg
an
pa
ev ou
en
er
et
ni in ns U or m an
ns
ni
D C
B
D
Fr
N
U E N A C
G
U
Eu U
Sw
U K
U
Ja
2589
812.4 18.4 73.6 82.2 208.6
50.4 15.7 292.1
71.2 1716 46 1669.7 61.2 123.7
2589
812.4 18.4 73.6 82.2 208.6
50.4 15.7 292.1
71.2 1716 46 1669.7 61.2 123.7
10.3
10.3
10.3
338
59.5
44.5
158.4
401
124
34.7
37.4
51.9
277
277
65.2
54.5
39.3
19.7
3.8
15.7 15.3
15.3
36.9
20.8
20.8 16.1
16.1
20
26
26
13.3
4.8
7.8
56.6
118.7
53.6
22.5
6.1
25 65.1
65.1
16.1
1037.4
107.6
43.7
8
55.8 929.9
929.9
-209.7
287.3
136
111.7
111.7 24.3
24.3
53.1
768.2
319.1 18.4 73.6 82.2
74.7
50.4 15.7
232 -227.8 387.9 46
342 61.2 -765.3

22,994
1,250
141,125
14,926
11.80%
-8,068
-5.70%
14,802

2000

Source: Adapted from Forfs Employment Survey, IDA Annual Report 2000, 2003 and United Nations Conference on Trade and Development, UNCTAD, WID.

Sector/Industry/Region/Economy
Total
Secondary
Food, beverages and tobacco
Textiles and clothing and leather
Wood and wood products
Publishing and printing
Chemicals and chemical products
Rubber and plastic products
Non-metallic mineral products
Metal and metal products
Machinery and equipment
Electrical and electrical equipment
Precision instruments
Motor vehicles and other transport equipment
Other manufacturing
Unspecified secondary

t
To

1999
17,613
1,266
126,199
8,335
7.10%
-9,278
-7.40%
15,665

Wages and Salaries of Affiliates of Foreign TNCs in Ireland, by Industry and Geographic Origin (2000)

Adapted from Forfs Employment Survey, IDA Annual Report 2000, 2003.

Exhibit 11

Source:

6,904
847
75,018
1,278
1.70%
5,626
7.50%
3,444

1991

Employment in IDA-Supported Companies

New jobs filled


Number of companies
Full-time employment
Net change in full-time employment
% net change
Job losses
Job losses as % of total jobs
Other employment

Exhibit 10

706-007

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 12 Comparative European Corporate Tax Rates


for Substantial Distributed Trading Profits

Country

Tax Rate

Ireland
Cyprus
Latvia
Lithuania
Hungary
Poland
Luxembourg
Portugal
Slovenia
Estonia
Germany
Czech Republic
Sweden
Finland
Slovakia
Denmark
U.K.
Italy
France
Belgium
Austria
Netherlands
Greece
Malta
Spain

Source:

22

12.5%
15.0%
15.0%
15.0%
16.0%
19.0%
22.9%
25.0%
25.0%
26.0%
26.4%
28.0%
28.0%
29.0%
29.0%
30.0%
30.0%
33.0%
33.3%
34.0%
34.0%
34.5%
35.0%
35.0%
35.0%

Adapted from IDA Ireland website, http://www.idaireland.com/


home/index.aspx?id=659.

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 13a

Selected EU Countries: Comparative Data

Year

Country

GDP
(current
US$
Millions)

1985

Cyprus
Czech Republic
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
Cyprus
Czech Republic
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
Cyprus
Czech Republic
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
Cyprus
Czech Republic
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK

2,418
..
..
548,993
41,977
20,623
20,644
..
..
25,931
455,534
8,861
55,257
4,331
1,570,256
120,152
44,656
67,104
5,236
7,621
112,960
1,133,633
9,147
56,721
5,623
1,327,963
114,601
47,958
96,166
7,833
11,418
112,650
1,442,845
..
123,981
13,748
2,126,630
225,206
110,364
201,817
16,042
25,652
183,305
2,201,591

1995

2000

2005

706-007

GDP
growth
(annual %)
4.9
..
0.5
2.0
2.5
-0.3
3.1
-0.4
..
2.8
3.6
6.1
6.0
4.5
2.2
2.1
1.5
9.6
-1.0
3.3
4.3
2.9
5.0
3.7
7.9
4.0
4.5
5.2
9.2
6.9
3.9
3.9
4.0
..
6.1
10.5
1.2
3.7
4.3
5.5
10.6
7.6
0.4
1.8

GDP per
capita,
PPP
(current
intl $)
8,158
..
6,171
14,182
9,741
7,870
8,718
6,104
..
7,630
12,979
15,648
13,144
6,290
22,251
13,612
9,703
17,844
5,258
6,302
14,439
21,326
19,175
15,450
9,392
27,244
17,057
12,977
29,155
7,975
8,719
18,782
26,476
..
20,845
15,968
31,908
23,377
18,256
38,892
13,700
14,584
21,125
33,135

GNI
(current
US$
Millions)
2,426
..
..
548,050
42,534
19,756
19,000
..
..
24,358
451,059
8,957
55,153
4,333
1,573,219
123,837
42,967
60,561
5,259
7,569
112,630
1,129,173
8,603
55,351
5,420
1,346,197
115,490
45,383
82,773
7,814
10,643
109,813
1,444,479
..
117,495
13,055
2,137,573
221,054
103,599
170,785
15,735
23,922
180,291
2,249,441

FDI,
net
inflows
(% of
GDP)

FDI, net
inflows
(% of gross
capital
formation)

Market
Cap. of
listed
companies
(% of
GDP)

2.4
..
..
0.5
1.1
..
0.8
..
..
1.1
1.2
2.7
4.7
4.7
1.5
0.9
10.8
2.2
3.4
1.0
0.6
1.9
9.4
8.8
6.9
3.2
1.0
5.8
26.5
5.3
3.3
5.9
8.5
..
..
21.8
3.3
0.3
5.8
-14.7
4.6
4.0
1.8
7.2

7.9
..
..
2.4
4.1
..
4.2
..
..
4.9
6.5
12.5
14.3
17.5
8.1
4.7
47.6
11.8
24.0
4.3
2.6
11.3
..
30.0
24.0
15.6
4.0
19.0
105.7
22.2
16.7
21.4
48.3
..
..
61.8
16.5
1.2
24.7
..
13.2
16.1
7.8
42.9

..
..
..
..
..
..
..
..
..
..
..
28.4
28.4
..
33.3
14.2
5.4
38.5
0.2
2.1
16.3
124.2
47.6
19.4
32.8
108.9
96.7
25.1
85.1
7.2
13.9
53.9
178.6
..
30.9
25.4
80.4
64.4
29.5
56.6
15.8
31.9
36.54
138.9

Source: Adapted from World Development Indicators, World Bank.

23

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 13b

Year

Selected EU Countries: Comparative Data

Country

1985 Cyprus
Czech Rep.
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
1995 Cyprus
Czech Rep.
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
2000 Cyprus
Czech Rep.
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK
2005 Cyprus
Czech Rep.
Estonia
France
Greece
Hungary
Ireland
Latvia
Lithuania
Portugal
UK

Unemployment
Rate

3.3
..
..
10.2
7.8
..
16.7
..
..
8.6
11.3
..
4.0
9.4
11.6
9.1
10.2
12.2
18.9
17.1
7.2
8.6
4.8
8.8
12.8
10.0
11.1
6.4
4.3
14.0
16.4
3.9
5.5
4.7a
8.3a
9.6a
9.9a
10.2a
6.1a
4.4a
8.7
8.3
6.7a
4.6 a

Tertiary
Population, Employment Employment Employment Secondary
Life
Literacy
education
total
in agriculture in industry in services education
expectancy
rate, adult
(% of
(thousands) (% of total) (% of total) (% of total) (% of total)
at birth
total)
542
10,335
1,529
55,170
9,934
10,579
3,540
2,621
3,545
10,011
56,685
651
10,331
1,437
57,844
10,634
10,329
3,609
2,515
3,632
10,027
58,250
694
10,273
1,370
58,896
10,918
10,211
3,805
2,372
3,500
10,226
59,743
758
10,234
1,346
60,873
11,104
10,087
4,159
2,301
3,414
10,549
60,227

16.4
12.1
..
7.6
28.9
..
15.6
..
19.7
23.8
2.5
10.7
6.6
10.2
1.6
20.4
8.0
11.6
17.4
23.8
11.5
2.0
5.3
5.1
7.2
1.6
17.4
6.5
7.8
14.5
18.7
12.6
1.5
..
4.0
5.3
..
12.4
5.0
5.9
12.1
14.0
..
1.4

Source: Adapted from World Development Indicators, World Bank.


a Unemployment figures for 2004.

24

31.0
47.7
..
32.0
27.4
..
28.4
..
40.4
33.8
31.2
25.3
41.8
34.2
27.0
23.2
32.6
28.1
28.0
28.2
31.9
27.3
23.3
39.5
33.3
24.5
22.6
33.7
28.5
26.3
26.8
34.4
25.3
..
39.5
34.0
..
22.4
32.4
27.8
25.8
29.1
..
22.0

50.9
40.2
..
60.4
43.7
..
55.6
..
39.5
42.4
64.9
63.0
51.1
55.6
71.4
56.3
59.3
59.9
54.0
48.0
56.6
70.1
67.4
55.3
59.5
73.9
60.0
59.7
62.9
59.1
54.5
52.9
72.8
..
56.5
60.7
..
65.1
62.6
65.6
61.8
56.9
..
76.3

..
..
..
..
..
..
..
..
..
..
..
..
76.9
66.9
..
28.0
60.5
31.8
..
..
..
45.0
40.7
78.2
46.4
46.0
29.9
65.2
..
..
41.4
11.9
47.4
..
..
..
..
..
..
..
..
..
..
..

..
..
..
..
..
..
..
..
..
..
..
..
10.5
17.4
..
20.8
14.3
24.3
..
..
..
22.3
27.0
11.3
41.2
25.4
27.9
16.4
..
..
43.2
9.0
26.1
..
..
..
..
..
..
..
..
..
..
..

75.8
71.0
70.0
75.3
75.0
69.0
73.5
69.3
70.5
73.4
74.6
77.5
73.1
67.8
77.8
77.6
69.8
75.8
66.4
69.0
75.1
76.8
78.1
75.0
70.9
78.9
78.0
71.2
76.4
70.4
72.0
76.5
77.7
79.3
75.9
72.6
80.2
79.0
72.6
79.4
71.4
71.3
78.1
78.9

92.5
..
99.8
..
93.2
98.8
..
99.8
99.1
84.4
..
95.8
..
99.8
..
96.2
99.2
..
99.8
99.5
89.9
..
97.1
..
99.8
..
97.2
99.3
..
99.7
99.6
92.2
..
..
..
..
..
..
..
..
..
..
..
..

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 14a

Year

706-007

Selected Asian Countries: Comparative Economic Data

Country

GDP GDP per capita, GNI (current FDI, net


GDP (current
inflows (%
US$
PPP (current
growth
US$
of GDP)
Millions)
intl $)
Millions) (annual %)

FDI, net inflows


Market
(% of gross
capitalization
capital
(% of GDP)
formation)

1985

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

304,912
35,531
20,644
96,619
31,772
17,743

13.5
0.2
3.1
6.8
-1.1
-1.4

838
10,125
8,718
4,533
3,165
7,740

305,753
34,868
19,000
94,289
29,535
18,302

0.5
..
0.8
0.2
2.2
5.9

1.4
..
4.2
...
8.8
13.9

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

1995

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

728,011
144,230
67,104
517,118
88,832
84,291

10.9
3.9
9.6
9.2
9.8
8.2

2,515
22,026
17,844
12,515
7,057
18,219

716,237
146,945
60,561
515,330
84,689
86,424

4.9
..
2.2
0.3
4.7
13.7

12.5
..
11.9
..
10.8
40.2

5.8
210.6
38.5
35.2
250.7
175.6

2000

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

1,198,480
168,754
96,166
511,658
90,320
92,717

8.4
10.2
9.2
8.5
8.9
10.1

3,940
26,214
29,155
16,149
8,573
23,594

1,183,815
169,878
82,773
509,443
82,712
91,975

3.2
36.7
26.5
1.8
4.2
17.8

9.8
133.4
105.7
..
15.5
42.2

48.5
369.4
85.1
33.5
129.5
164.8

2005

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

2,243,853
177,783
201,817
791,427
130,770
116,693

10.2
7.5
5.5
4.2
5.2
6.6

6,760
34,923
38,892
22,080
10,887
29,842

2,254,487
177,995
170,785
790,239
124,457
112,117

3.5
20.2
-14.7
0.5
3.0
17.2

7.4
96.4
24.4
4.1
19.1
62.7

34.8
566.0
56.6
90.7
138.6
178.5

Source: Adapted from World Development Indicators, World Bank.

25

706-007

Foreign Direct Investment and Ireland's Tiger Economy (A)

Exhibit 14b

Year

Selected Asian Countries: Comparative Economic Data

Country

Life
Employment Employment Employment Tertiary expectancy Adult
Unemployment Population in agriculture in industry in services education at birth Literacy
(% of total)
(Millions) (% of total) (% of total) (% of total) (% of total) (years)
Rate

1985

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

1.8
3.2
16.7
4.0
6.9
4.4

1,051.0
5.5
3.5
40.8
15.7
2.7

..
1.6
15.6
24.9
30.4
0.7

..
44.4
28.4
30.8
23.8
35.2

..
54.0
55.6
44.3
45.8
63.7

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

68.3
76.4
73.5
68.5
68.9
72.9

73.4
..
..
..
76.3
85.6

1995

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

2.9
3.2
12.2
2.1
3.1
2.7

1,204.9
6.2
3.6
45.1
20.3
3.5

48.5
0.6
11.6
12.4
20.0
0.2

21.0
27.0
28.1
33.3
32.3
31.0

12.2
72.4
59.9
54.2
47.7
67.9

..
..
24.3
19.2
..
33.2

69.4
78.7
75.8
73.4
71.5
76.4

81.9
..
..
..
84.3
90.7

2000

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

3.1
4.9
4.3
4.1
3.0
4.4

1,262.6
6.7
3.8
47.0
23.0
4.0

46.3
0.3
7.8
10.6
18.4
0.2

17.3
20.3
28.5
28.1
32.2
34.2

12.7
79.4
62.9
61.2
49.5
65.4

..
..
..
24.0
..
36.6

70.3
80.9
76.4
75.9
72.6
78.1

90.9
..
..
..
88.7
92.5

2005

China
Hong Kong
Ireland
Korea, Rep.
Malaysia
Singapore

4.2
..
..
..
..
..

1,304.5
6.9
4.2
48.3
25.3
4.3

..
0.3
5.9
7.9
..
..

..
15.2
27.8
26.8
..
29.5

..
84.6
65.6
65.1
..
69.6

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

71.8
81.6
79.4
77.6
73.7
79.7

Source: Adapted from World Development Indicators, World Bank.

26

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

Foreign Direct Investment and Ireland's Tiger Economy (A)

706-007

Endnotes
1 Headline of the article introducing the Economist Intelligence Units Quality of Life Survey, EIU World
Report in 2005, p. 86. The article adds, Ireland wins because it successfully combines the most desirable elements
of the new (the fourth highest GDP per head in the world in 2005, low unemployment, political liberties) with
the preservation of certain cozy elements of the old, such as stable family and community life.
2 Survey: Tiger, Tiger, Burning Bright, The Economist, October 16, 2004, p. 4. Available from Proquest,
ABI/Inform, http://www.proquest.com, accessed February 7, 2005.
3 Calculations based on World Bank data and Irish Economic Growth: A Brief History of the 1990s, AIB
Quarterly Economic Focus (Autumn 2000). Allied Irish Banks website, www.fxcentre.com/jb/pdfs/quarterly/q32000-15.pdf, accessed February 14, 2005.
4

Irish Economic Growth: A Brief History of the 1990s, AIB Quarterly Economic Focus.

For more information on the role of FDI in economic growth and the current debate see Laura Alfaro and
Esteban Clavell, "Foreign Direct Investment," HBS No. 703-018 (Boston: Harvard Business School Publishing,
2002).
6

Enterprise Strategy Group, Ahead of the Curve: Irelands Place in the Global Economy, July 5, 2004,
Forfs website, http://www.forfas.ie/esg/, accessed February 7, 2005.
7 Tnaiste Launches Report of Enterprise Strategy Group, Press Release and Summary of
Recommendations, July 7, 2004, Forfs website, http://www.forfas.ie/esg, accessed February 14, 2005.
8

Enterprise Strategy Group, Ahead of the Curve, p. 5.

Average housing prices had more than doubled since 1995. Martin Wolf, Irelands Miracle, The Financial
Times, July 19, 1999. Available from Factiva, http://www.factiva.com, accessed February 23, 2005.
10The European Union classified Irelands regions into three different categories for structural fund
disbursement purposes. Objective One regions were those whose development was lagging behind.
Specifically, the threshold set for qualification required per capita income, as measured by GDP, to be less than
75% of the EU average. Since Irelands GDP per head had reached more than 100% in 1998, the government
decided to divide the country into two regions. The more affluent eastern and southern counties would
experience a gradual phasing out of Objective One status, while 13 border, midland, and western counties
retained Objective One status. It was estimated that by 2006, Ireland would be a net contributor to the EU budget
and not a net beneficiary.
11

Germany and Belgium, in particular, with 26% and 34% tax rates, respectively, objected to Irelands low

rate.
12

For example see Laura Alfaro, Rafael Di Tella and Anne Damgaard Jensen Rovna Da: The Flat Tax in
Slovakia With Rafael Di Tella and Anne Damgaard Jensen, HBS No. 707-043, 2007.
13

J.W. OHagan, The Economy of Ireland (Dublin, Ireland: Gill & Macmillan, 2000), p. 30.

14

Data and portions of this section were taken from Ray Mac Sharry and Padraic White, The Making of the
Celtic Tiger (Cork, Ireland: Mercier Press, 2000.
15

Richard Finnegan and Edward McCarron, Ireland: Historical Echoes, Contemporary Politics (Boulder, CO:
Westview Press, 2000), p. 109.
16 IDA had been formed in 1949, after contentious debate within government and civil service quarters (Mac
Sharry, p. 187). Some had feared that the new organization would be nothing more than a gang of crackpot
socialist planners who would hamper private enterprise (Mac Sharry, p. 184. Although IDA was established in
1949 as part of the Department of Industry & Commerce, its authority increased greatly in 1969 when it was
incorporated as an autonomous state-sponsored body responsible for all aspects of industrial development.
17

Mac Sharry and White, The Making of the Celtic Tiger, p. 187.

18

Ibid., p. 190.

19

Ibid., p. 235.

20

Ibid., p. 30.

27

706-007

21

Foreign Direct Investment and Ireland's Tiger Economy (A)

J.J. Lee, Ireland 19121985, Politics and Society (Cambridge, England: Cambridge University Press, 1989), p.

531.
22

Paul Tallon and Kenneth L. Kraemer, "Information Technology and Economic Development: Ireland's
Coming of Age with Lessons for Developing Countries," Center for Research on Information Technology and
Organizations,
I.T.
in
Business,
Paper
136,
November
1,
1999.
Available
from
http://repositories.cdlib.org/crito/business/136, accessed February 28, 2005.
23

Lee, Ireland 19121985, p. 531.

24

Tallon and Kraemer, Information Technology and Economic Development.

25

Lee, Ireland 19121985, p. 532.

26

Ibid.

27

Ibid.

28

Ibid.

29

Mac Sharry and White, The Making of the Celtic Tiger, p. 203.

30

Lee, Ireland 19121985, pp. 535536.

31

Mac Sharry and White, The Making of the Celtic Tiger, p. 209.

32

Ray Mac Sharry, "EIB Forum 2004 Speech," European Investment Bank website, http://www.eib.org/
forum/docs/ s_macsharry.pdf, accessed February 7, 2005.
33

Mac Sharry and White, The Making of the Celtic Tiger, pp. 6870.

34

Some observers cited demographics as a driver of Irelands success, noting that Irelands high birth rate in
the 1960s and 1970s led to its having the youngest population in Europe by the 1980s. Others noted that young
populations often have a destabilizing impact on sluggish economies and saw it as the fuel for growth rather
than the trigger.
35

J.W. OHagan, The Economy of Ireland (Dublin, Ireland: Gill & Macmillan, 2000), p. 38.

36

Frank Barry, John Bradley, and Aoife Hannan, The Single Market, The Structural Funds and Irelands
Recent Economic Growth, May 2001, p. 9.
37 For more on the impact of corporate taxation on FDI, see M. J. Slaughter, Host-Country Determinants of
US foreign direct investment into Europe, in Foreign direct investment in the real and financial sectors of industrial
countries, Hermann and Lipsey, eds. (Springer, 2003); and Altshuler, Gubert, and Newlon, Has US investment
abroad become more sensitive to tax rates? in International Taxation and Multinational Activity, J.R. Hines, Jr., ed.
(Chicago: University of Chicago Press, 2001). See also Desai, Foley, and Hines, Chains of Ownership, regional
tax competition and foreign direct investment, NBER Working Paper No. 9224, 2002b.
38

Kieran McGowan, interview by author, Dublin, Ireland, November 5, 2004.

39

A.V. Vedpuriswar, Country Scan: Ireland, A.V. Vedpuriswar website, http://www.vedpuriswar.org/


articles/ GCEO/Ireland.PDF, accessed February 7, 2005.
40

Mac Sharry and White, The Making of the Celtic Tiger, pp. 219220.

41

Colin Coulter and Steve Coleman, eds., The End of Irish History?: Critical Reflections on the Celtic Tiger
(Manchester, England: Manchester University Press, 2003), p. 38.
42

Thomas Friedman, The End of the Rainbow, The New York Times, June 29, 2005.

43

Brian Cogan, interview by author, telephone, October 7, 2004.

44

World Bank Indicators, WDI database.

45

Gross national product excludes the profits earned by foreign firms.

46

Several linkages programs had existed through the early and mid-1980s. The National Linkages Program
of the 1980s was launched by IDA. See United Nations Conference on Trade and Development, World Investment
Report 2001:Promoting Linkages (New York and Geneva: United Nations, 2001), p. 185.
47

For an overview of the empirical evidence see Laura Alfaro and Andrs Rodriguez-Clare, "Multinationals
and Linkages: An Empirical Investigation," Economia (Spring 2004); and Holger Gorg and Frances Ruane,

28

Foreign Direct Investment and Ireland's Tiger Economy (A)

706-007

Multinational Companies and Linkages: Panel-Data Evidence for the Irish Electronics Sector, International
Journal of the Economics and Business 1 (2001): 118.
48

For more on debate surrounding FDI and linkages in Ireland see Gorg and Strobl, Multinational
companies, technology spillovers and plant survival: evidence from Irish manufacturing, EIJS Working Paper
131, Stockholm School of Economics, 2001.
49

Giorgio Barba Navaretti and Anthony J. Venables, Multinational Firms in the World Economy (Princeton, NJ:
Princeton University Press, 2004), p. 209.
50

F. Desmond McCarthy, How the Celtic Tiger Did It: Irelands Rapid Convergence with the Industrial
World, World Bank, 2001.
51 Sean Dorgan, Is FDI Necessary in Post Celtic Tiger Ireland? strategy statement by Sean Dorgan, CEO,
IDA Ireland, Dublin Economic Workshop Conference, November 11, 2002.
52

Coulter and Coleman, The End of Irish History? p. 39.

53

Ibid., p. 38.

54

Ibid., p. 39.

55

Sean Dorgan, interview by author, Dublin, Ireland, November 3, 2004.

56

CRH was one of Irelands largest homegrown multinationals, with revenues of nearly $11 billion.

57

Frank Fitzgibbon, business editor of the Sunday Times. Telephone interview by author, October 26, 2004.

58

Patrick Honohan and Brendan Walsh, Catching up with the Leaders: the Irish Hare, Brookings Panel on
Economic Activity, Brookings Institute, April 4, 2002, p. 19.
59

Brian Cogan, interview by author, telephone, October 7, 2004.

60

Honohan and Walsh, Catching up with the Leaders: the Irish Hare.

61

Coulter and Coleman, The End of Irish History? p. 39.

62

Gropp and Kostial (2000)noted in Barry, p. 18.

63

Brian Cogan, interview by author, telephone, October 7, 2004.

64

Kieran McGowan, interview by author, Dublin, Ireland, November 5, 2004.

65

Dorgan, Is FDI Necessary in Post Celtic Tiger Ireland? IDA strategy statement.

66

Department of Enterprise, Trade, and Employment, Review of Industrial Performance Policy 2003,
September 19, 2003. Available from Department of Enterprise, Trade and Employment, http://www.entemp. ie,
accessed February 14, 2005.
67 U.S. Department of Commerce Bureau of Economic Analysis website, http://www.bea.gov/bea/di/
usdcap/cap_03.htm, accessed 2005.
68 Ireland Economic Profile, Enterprise Ireland website, http://www.enterpriseireland.com, accessed
February 28, 2005; Thomas Friedman, The End of the Rainbow, The New York Times, June 29, 2005.
69

Sheryl Sandberg, interview by author, Mountain View, California, December 15, 2004.

70

Clusters are groups of firms all related to the same sector industry.

71

Science Foundation Ireland, Introduction to SFI: Helping Ireland Recruit and Retain Research Groups,
Science Foundation Ireland website, http://www.sfi.ie/content/content.asp?section_id=207&language_id=1,
accessed February 14, 2005.
72

Raymond Bowe, economist, IDA. Interview by author, Dublin, November 3, 2004.

73

Sean Dorgan, CEO, IDA. Interview by author, Dublin, November 3, 2004.

29