Professor: Sajal Lahiri
April 15, 2011
“Foreign Direct Investment in Ireland: Policy Implications for Emerging Economies” is a scholarly journal article which is written by Peter J. Buckley and Frances Ruane of the University of Leeds and Trinity College in Dublin, Ireland. The article is well structured and starts off with an introduction explaining how the important role of multinational enterprises (MNEs) in the global economy relates to issues of how the foreign direct investment (FDI) they control impacts on overall economic activity in the receiving countries. It explains that specific emphasis is centered on how the government can influence FDI policies and thereby attract more of an audience. The journal article focuses the entire paper on the FDI in Ireland because of two primary reasons: 1) because Ireland has consistently promoted export-platform inward investment into the manufacturing sector for over four decades, and 2) MNEs in the Ireland economy now account for fifty percent of manufacturing employment and are the focal point of restructuring of the Irish manufacturing sector over the past twenty years. The introduction then goes on to explain that there are four sections of the paper (the first being the introduction itself). The second section examines literature that emphasizes the selective promotion of MNEs, as well as the DFI policies that have promoted MNEs on a selective basis in Ireland. The third section shows primarily how Ireland has attempted to establish industrial clusters in manufacturing, while the fourth and final section draws out some policy propositions for newly emerging economies, which are based on the Irish policy experience. For the second section of the journal article, it explains that until the 1970s there was pretty much an implication of free mobility of capital across sectors. Then, it explains, the ‘Internalization School’ provided a strong connection between MNEs and development in general. In essence, the school argued that developing countries are inexperienced and lack resources, so FDI could essentially help developing countries through capital, technology, and management techniques as well as overall “know-how.” MNEs have far better access to capital from the international banking sector, and this can make a dramatic effect on the development of countries. Technology transfer can also speed up development by “facilitating the production of goods with higher value-added content by increasing exports and improving efficiency.” The article explains that MNEs posses most of the international patents and it would be much easier for developing countries to get access to these resources by inviting and encouraging FDI. The article also points out that MNEs can also play a huge role in teaching the know-how of the newly emerged sector or enterprise to locals in the respective emerging economy. Finally what is also pointed out is that MNEs allow developing countries to penetrate foreign markets because they may make use of worldwide marketing outlets thereby allowing the selling of products where large marketing investments would have otherwise been needed. Ireland starting shifting its policies from high rates of tariff protection and prohibition of FDI towards a free trade policy that comprised of encouragement and incentives for MNEs. More specifically, the incentives were given in the form of generous financial support for capital investment as well as through giving a tax holiday of fifteen to twenty years on the incremental profits generated by export sales. The journal article then goes on to further elaborate on the development of policy in Ireland. It explains that Ireland realized huge benefits in the 1960s because it had very attractive FDI environment. This was furthered by Ireland’s entry in to the European Community in the 1970s. However, in the 1970s, policy towards FDI became much more selective in...