Ireland's Economic Performance: A View from the MNCs

Multinationals in Ireland Foreign-owned firms are very important to the Irish economy. Almost 1,200 foreign MNCs employ about 120,000 people in Ireland on a permanent basis, equivalent to over 11 per cent of all private sector employment. Exports from these firms amount to almost 50 per cent of Irish GDP. The equivalent figure for the UK is in the region of 25 per cent. ForMs (1998) shows that these firms had turnover of L25.7 billion in 1996 and spent L10.4 billion in the economy. These figures are growing at over 20 per cent each year. Almost 24 per cent of this expenditure is in the form of wages and salaries, with 43.5 per cent being spent on Irish services. The MNC sector has been credited with providing a vital impetus to the recent performance of the economy (Foras, 1996; Gray, 1997; NESC, 1998). Barry and Bradley (1997: 13) trace the development of MNCs in Ireland and argue that: Much of the history of the Irish economy. can be explained in terms of the quite phenomenal growth of export oriented FDI in manufacturing . The combination of geographical and compositional shift - to regions with faster growth and to goods with higher income elasticities - gave a long-term boost to the Irish growth rate, though this was masked at times by world recessions and domestic policy errors. Gorg and Ruane (1997) show that the importance of FDI has been greater than its direct impact on output and employment and has facilitated industrial restructuring and sectoral adjustments in the economy while maintaining exchange rate stability, aggregate job levels in manufacturing and regional dispersion. They credit a widespread consensus and continuity in overall policy - although there have been subtle and important shifts within this policy - as important factors. Duffy et al. (1997) agree that all Irish governments since the 1960s have consistently followed a policy of attracting FDI. Clearly, therefore, foreign firms are very important to the performance of the Irish economy. But is the reverse also true? How important is the Irish economy and Ireland's economic performance to the multinationals? Clearly, Ireland's importance as a source of local demand will be limited due to its size. In addition, the importance in recent decades of the US as a source of FDI means that MNCs in Ireland are likely to have a high propensity to export, particularly to the EU (Taggart, 1997). As a result, the focus of any examination of dependence must be on supply conditions. This approach is encapsulated within the concept of national competitiveness as commonly applied. Different aspects of the impact of national characteristics on MNC performance have been examined in various countries. Amongst others, Hood and Young (1988) focused on the impact of membership of the EU and openness to international trade on MNC location decisions. Others such as Cantwell (1991) identified the importance of agglomeration effects in influencing decisions. Work by Taggart (1991) on pharmaceutical firms supports Cantwell's conclusions in relation to the location of plants. Molero et al. (1995), in a study of foreign firms in Spain, found that a range of domestic factors had influenced the locating of facilities there. Lundvall (1992) identifies the importance of a strong national system of innovation and the possibility that this may also operate at sub-national levels, while the work of Fransman (1995) shows that national policies may be successfully modified to accommodate the demands of an integrated global economy. Irish research has tended to focus on policy issues and on the importance of the MNCs to the economy. As a result, despite their importance in Ireland, there has not been a great deal of research outside the state agencies to identify the key issues of importance that attract the MNCs to produce here. In addition, the issues that the managers of these firms consider to be the most important determinants of their performance in Ireland are unclear. …