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Europe and Central Asia

FDI in Ireland: A Reason for Optimism?

John Anderson's picture

On a recent trip to Ireland, stories about the impact of the continuing economic crisis were abundant. Newspapers ran stories about the substantial loss of wealth and purchasing power, such as the increase in 'negative equity' as the value of homes owned by the middle class fell significantly below their mortgages. Cab drivers explained how jobs had been shed throughout the economy, and bemoaned the resulting rise in the number of drivers and increased competition for fares. The reality of the recession and fiscal collapse following the banking crisis of late 2008 was clear.

However, anecdotal evidence about a different aspect of Irish finance – foreign direct investment – suggested a more positive story. I walked through one neighborhood in Dublin that houses the European headquarters of Google, Facebook, and LinkedIn. The latter two were established after the onset of the economic crisis, and Google is in the process of expanding its presence in Dublin. Lawyers at large corporate law firms were excited to discuss FDI, citing it as a key driver of Ireland’s future growth. One firm even maintains a FDI index that highlights large inflows and the positive perception of Ireland as a destination for US investment.

Might FDI in Ireland be the best indicator to consider the strength of the economic fundamentals that enable long-term growth? Ireland has historically benefitted from large inflows of FDI relative to its size. And despite the recent economic crisis, these inflows have largely continued.

Over the past 10 years, inflows of FDI into Ireland tend to be substantially higher as a percentage of GDP than inflows into other OECD economies (see Figure 1). In 2009 and 2010, the two years immediately following the banking collapse, Ireland attracted three to four times more FDI proportionately than other OECD economies. These inflows were not just large in relative terms – they were equivalent to 11.7% of GDP in 2009 and 12.9% in 2010. The negative inflows in 2005 and 2008 do indicate that more money was disinvested out of Ireland than newly invested in the economy those years. However, such outflows are mostly loans or dividend payments from foreign-owned firms in Ireland to their affiliates abroad, at least some of which were likely caused by a 2004 change in the US tax rate on foreign profits.

Figure 1: Net inflows of FDI as percentage of GDP, Ireland vs OECD
 
Source: UNCTAD and author’s calculations

How do they do it? Public-private partnerships and universal healthcare

David Lawrence's picture

I pay through the nose for health insurance for my family, and I’m not happy about it. As a U.S. citizen, I don’t have the luxury of government-backed healthcare. Since I’m technically self-employed, I have to pay the full premium myself. Want some figures? It costs me $830 a month for a family of four, with a high deductible. Besides being expensive, it takes a huge effort to deal with insurance issues, and I find that my provider is expert at finding reasons not to reimburse me for medical expenses. This is chewing a gaping hole in my budget. The only way I’ll ever get value for my money is if I’m hit by a bus.

Despite progress, corruption remains a huge problem for Russian firms

Mohammad Amin's picture

In a previous post written jointly with Arvind Jain, Arvind and I highlighted some recent findings concerning businesses in Azerbaijan. Below, I extend the discussion to another country, Russia. What follows is a brief summary of our main findings, with more details available in the country note, found hereThe note is based on newly collected firm-level data on various aspects of the business climate and experiences of a statistically representative sample of firms Enterprise Surveys. The data also contain information on various measures of performance and the structures of the firms. The main findings are as follows.

Kiev's Insane Housing Market

David Lawrence's picture

Svetlana Nikolaevna had never seen so much cash in her life. It was her family’s life savings, a huge stack of $100 bills, totaling $250,000. The girl behind the glass was counting it, verifying the authenticity of each bill with a scanner that beeped its approval if everything looked OK. Then, just to be sure, the girl examined each note under an ultraviolet light.

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