The Impact of Foreign Direct Investment on Sectoral Adjustment in the Irish Economy

Abstract

Foreign direct investment (FDI) has played a crucial role in the overall development of the Irish economy over the past three decades, as the Republic of Ireland, hereafter referred to as Ireland, has pursued an industrial strategy characterised by (i) promoting export-led-growth in Irish manufacturing through various financial supports and fiscal incentives, and (ii) encouraging foreign companies to establish manufacturing plants in Ireland, producing specifically for export markets. The significance of FDI for the Irish economy is now reflected in, inter alia, the significant gap between GNP and GDP; in 1994, GNP was roughly 88 per cent of GDP in Ireland. As regards the manufacturing sector, the high shares of output and employment in foreign-owned companies in Ireland also indicate the importance of foreign firms. As we discuss in some detail in Section 3, foreign companies produced roughly 69 per cent of total net output and accounted for 45 per cent of employment in Irish manufacturing industries in 1993.