Ireland & Globalisation
Centre for Transatlantic Relations,
John Hopkins University
Ireland is perhaps the biggest West European winner from open flows of goods, services and people, that globalisation has brought. Transforming itself from one of Europe’s poorest to one of its wealthiest countries. Interestingly Ireland has moved from the export specialisations of the Asian companies.In terms of both IT intensity and innovation, two of the most transformational sectors of the global economy, Ireland ranks higher than most of Europe.
Ireland has been boosting R&D expenditure impressively by over 7.5% annually in real terms since 1995. High and medium-high-technology manufacturing represents an important driver of Irish economic growth, although its value added share has peaked and begun to fall.Ireland is well positioned to take advantage of the globalisation of services; services in 2007 represented 44 percent of Irish exports. The intra-EU migration wave has been a boon to Ireland which has received many central European workers who have largely proven to be complements rather than substitutes to the native workforce, filling jobs where the supply of labour is relatively scarce, keeping wages and prices low and spurring growth.
Ireland is both a top EU onshorer and offshorer. Ireland has been a particularly important offshoring location, particularly for US firms. It has also been successful in attracting significant R&D investment by companies headquartered in other European countries.
The US economic relationship with Ireland is simply stunning. Between 2000 and 2007, American direct investment into Ireland totalled $56.2 billion, compared to just $22 billion for US FDI into China and $9 billion into India. In 2000, US affiliates generated income of $5.8 billion in Ireland comparedto $1.4 billion from China and India – last year later the income figure for Ireland was $19.4 billion, compared to $8.7 billion for China and India. Corporate America’s investment position in Ireland in 2007 ($87 billion) was more than double America’s total investment stakes in India and China combined.
Ireland has thrived on globalisation despite its apparently nominal ability to cope, due to its low average education levels, weak innovation framework and over-regulated utility industries. It has prospered by attracting skills from abroad through high immigration, keeping wages in check, and keeping tax rates low.
To remain attractive to foreign investors, Ireland must work hard to upgrade its social services and physical infrastructure, keep inflation in check, manage the housing market astutely, and address regulatory barriers in sectors such as retail trade and utilities. Ireland has relied to a large extent on foreign corporations as the main generator of innovation and research. The local research base remains thin and even though public funding of R&D has grown quickly, it has barely kept pace with economic output.
Ireland invested significantly in education over recent decades, and educational outcomes are now broadly in line with the OECD average, although still far below the results achieved by the best performers in the OECD. Further efforts are all levels, from pre-primary school to tertiary education and continued learning are needed to bring the education system nearer to best practice. Ireland’s investment in knowledge, however – less than 2.5 percent of GDP – is worrisome.
Joseph Quinlan addressed the American Chamber Cork Business Lunch at the Maryborough Hotel, on October 23rd & the American Chamber Global Investment Symposium at the Dublin offices of Bank of America Ireland on October 22nd. This article originally appeared in the American Chamber’s ‘Southern Region: Special Report 2008’ supplement in the Irish Examiner.