2010 Reports

Inward FDI in Ireland and its policy context

Brennan, Louis; Verma, Rakhi

Ireland has one of the highest ratios of inward foreign direct investment (IFDI) stock to gross domestic product (GDP) among the OECD countries. The surge in IFDI from the 1990s onwards is regarded as one of the factors that contributed to the "Celtic Tiger" era of rapid economic growth, rising living standards and full employment. However, stocks of IFDI fell in four of the six years from 2004 to 2009, largely due to outflows of capital from foreign affiliates in Ireland to their parent companies abroad. More recent data show an increase in IFDI stock in 2009, which continued into the first quarter of 2010. This rise is in large part due to the scale of reinvested earnings on the part of foreign affiliates in Ireland and the growing success in attracting knowledge intensive investment, while the lowering of the cost base since the advent of the crisis in Ireland has enhanced its attractiveness as an investment location. Changes in business taxation that have taken effect in 2010 have been designed to improve Ireland's attractiveness to knowledge intensive industries and as a location for company regional headquarters. The Irish Government is committed to maintaining the low rate of corporate taxation of 12.5%. While the current crisis has had the paradoxical effect of increasing Ireland's attractiveness as a location for FDI, future FDI prospects will also be enhanced by Ireland demonstrating a capacity to overcome its present difficulties.