Foreign direct investment

Topics: Investment, Macroeconomics, Foreign direct investment Pages: 6 (2100 words) Published: February 11, 2014
CA Assignment on Foreign Direct Investment

Introduction:
Over the past twenty years Ireland has taken policy steps to encourage foreign direct investment to Ireland. The aim has been to help promote economic growth and employment creation in particular. In this paper I will first outline the key policy measures taken. I will then discuss how successful they have been. Finally I will consider the threats to achieving Ireland’s policy objectives in this area in the future.

It is important for a small country like Ireland to trade with others, and in order to trade we must have the appropriate organisations set up and invested here to do so. There has been evidence that would suggest exporting can improve a country’s economic growth. This is essential for Ireland as the majority of Irelands manufacturing goods are exported increasing Ireland’s economic growth.

Policy approach:
Ireland over the past 20 years has used value added growth as its key economic development strategy. The main focus was on attracting foreign direct investment and increasing productivity within Ireland and achieving economic growth. The government used many policies such as a low corporation tax rate and a tax relief on research and development and offering grants to encourage foreign investors to set up here.

According to IDA Ireland, Ireland also focussed on attracting high tech companies in the I.T and pharmaceutical industry. This has proven successful as many large companies such as Pfizer, Microsoft and Google have set up here employing many people in well-paid jobs within these sectors. The government policy of increasing the number of places at 3rd level education and abolishing 3rd level fees helped provide a highly skilled and flexible workforce.

There are four key advantages from inward Foreign Direct Investment. They are the resource transfer effects such as technology, capital and management resources. The second advantage is the employment effects, meaning the creation of jobs as a result of inward Foreign Direct Investment. Ireland enjoys the benefits of the 152,785 jobs that are generated from the hosting of foreign companies within Ireland today tallied by IDA Ireland. The third benefit to Ireland is the balance of payments effect where foreign direct investment has the ability to attain a current account surplus, with billions of euros each year being generated from the profits of both these large and small companies set up here. Last is the competition and economic growth effects, this means that with increased competition the prices are driven down and improve the welfare of consumers. As companies in Ireland become more competitive this increases their sales and has a positive impact on economic growth

Success of policy approach:
There are four main areas I will look at when analysing the Irish policymakers approach to inward foreign direct investment over the past twenty years. Those areas are; Irelands Talent scorecard, our track record, our Tax regime and our cost competiveness.

Ireland has many eye-catching attributes to attract foreign companies to come set up and invest here and one of them is our attractive workforce. Ireland is ranked number one in the EU for people who have completed third level education. In Ireland 48% of the people between the ages of 25-34 hold a third level degree which is 10% above average according to OECD 2013. I believe this has prepared and propelled the Irish workers to be ranked 3rd in the world for skilled workers according to the IMD world competitiveness yearbook 2013. The Irish workforce are also known and favoured for being flexible and adaptable as they are ranked number one in the world for this. The English language is also key here as many countries around the world use English as a second language. Finally the Irish labour productivity is 4th in the world for GDP per person employed per hour. This points to a successful policy of having a highly skilled and...

Bibliography: www.idaIreand.com (viewed 20-10-13)
OECD 2013: Education at a glance 2013 http://www.oecd.org/edu/eag2013%20(eng)--FINAL%2020%20June%202013.pdf (viewed 21-10-13)
IMD world competitiveness yearbook 2013
Economist Intelligence Unit 2008-2012
Global Innovation Index 2012 http://www.globalinnovationindex.org/content.aspx?page=GII-Home (viewed 25-10-13)
World Bank Doing Business 2013 http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB13-full-report.pdf (viewed 29-10-13)
Site Selection 2013 http://www.siteselection.com/ (viewed 29-10-13)
Eurostat 2013 http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ (viewed 1-11-13)
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