PhD Thesis on FDI
As once small Ireland opened it's doors to the abundance of wealth and diversity of markets in the global economy the impacts of globalization have trickled down making Ireland the "Celtic Tiger" it is known as today. Ireland has successfully implemented a series of effective economic development strategies that have seen it sustain GDP growth of over 8%pa in recent years, government debt drop from 90% of GDP to 34% and the unemployment rate fall from 17% to only 3.7%. These strategies have concentrated on openness to FDI inflows (especially technology), tax cuts, trade and human capital development and the creation of a favorable business environment whilst support from the EU and effective planning have assisted along the way. Ireland has molded a set of development policies that have been targeted to take advantage of the opportunities of globalization. Ireland poised itself to benefit from larger FDI and capital markets created by globalization.
It successfully implemented this "industrialization by invitation strategy" by creating a favorable business environment via continuous taxation reforms, deregulation and heavy reductions in restrictions on trade and investment, described by the OECD as a "light handed regulatory environment". Combined with its relatively low average wages and further government commitments into economic development, FDI inflows have increased dramatically boosting the Irish economies development and growth. Ireland now captures over 10% of US annual FDI flows from the US into the EU compared to 2.5% in the 80's while over 20% of US FDI in manufacturing, software and services goes to Ireland. This has seen Ireland able to boast a position of the second largest software exporter in the world and over a quarter of manufacturing in Ireland now carried out by foreign TNC's. With globalization creating greater convergence in global economic performance, Ireland through its interdependence with key US and UK markets has benefits from their strengths with rising export demands and investment. The establishment of organizations such as "Enterprise Ireland" has also assisted in expanding on this investment base.
From the Asian Tiger's, Ireland has also learnt that sustained economic development requires continual investment in human capital or education which the government has committed to significantly. The continual strong economic growth has also led to reductio ns in "brain drain", improving the quality of the workforce and along with specific structural taxation changes has led to a broadening labor participation force and a positive net migration rate all of which are contributing to healthier economic development. However this extreme growth has caused inflationary pressures and in an attempt to make the business environment even more favorable, a centralized wage system has been introduced in March 2000 known as the PPF to make Ireland's wage system more efficient.
Over the last decade Ireland has undergone significant fiscal changes in an attempt to increase efficiency and development. Personal income taxes have been reduced 6 times from 32&56% in 1990 to 22&44% in 2000. A result of this has been to increase personal disposable incomes which have contributed to the high growth rates and also to the high national savings rate of 23.1%. The standard rates of corporate taxes were reduced from 43% to 10% in the same period boosting the image of a favorable busine ss investment which contributed to increased FDI inflows and hence increased development of the Irish economy.
With entry into the Euro area in 1999 interest rates fell by 3% causing a rapid expansion in the credit base allowing for further development. The Irish government has since drawn the National Development plan or NDP involving expenditures of 17.6Billion pounds or a 28% rise on infrastructure and expansion. In an attempt to develop regional areas near Dublin easing the urban property boom and allowing for further industrial expansion possibly from foreign technology TNC's which have played a vital role in Ireland recently this plan is set to operate between 2000 & 2006. Furthermore Ireland is poising itself for continual future growth with the government strategically maintaining consistent surpluses of over 2% of GDP for the last few years to reduce foreign debt and allocate resources for future liabilities such as pensions. This has helped keep development sustainable in recent years but as the Irish economy matures into a developed advanced economy from its NIC status, a slowdown in growth and development is almost certain.
Globalization has assisted Ireland gain via specialization in the form of cheap skilled labor which resulted in the high growth in investment in the technology sector. The low starting point of its living standards relative to the rest of the industrialized world also portrays how the implementation of these successful strategies has elevated the Irish economy benefiting from globalization. Integration into the global economy has also helped Ireland as it qualified for economic aid subsidies from European counterparts worth up to $650pc . Integration has also meant that Ireland has been pressured to comply with global environmental standards including the introduction of water pricing, fair taxation on negative externalities such as fuel consumption, and the National climate change strategy which aims to reduce greenhouse gas emissions by 20%. In the long run these structural development changes should result in greater sustainability of development but this comes at the opportunity cost of sacrificing short term development. Recently Integration has resulted in negative outcomes caused by the regional weakness in agriculture as a result of the foot-and-mouth disease and further pressure on exports created by the global slowdown accelerated after S11 especially because of the involvement in the conflict by the UK, one of Ireland's closer economic partners.
Several structural changes have also helped Ireland benefit from globalization, where its economy has shifted from mostly agrarian to a leading exporter in pharmaceuticals and software.
To keep its economy internationally competitive, Ireland is in the process of reforming its public systems such as local governments and planning authorities to increase efficiency that will trickle down into broader economic development and growth as experienced by similar nations world wide.
Ireland's economic development strategies have been reformed and molded consistently to maximize efficiency in benefiting from the opportunities created from globalization. These strategies have been implemented successfully and have resulted in phenomenal growth and development success lifting Ireland into a competitive and productive nation.
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