Skip to main content
SpringerLink
Log in
Book cover

Financial Market Integration and Growth pp 293–310Cite as

Different Modes of Foreign Direct Investment in Ireland: A Theoretical Analysis

  • Chapter
  • First Online:

  • 905 Accesses

Abstract

A high inflow of Foreign Direct Investment (FDI) has been observed in Ireland in recent decades. The significance of foreign firms manifests itself in several key figures: the FDI inflows (as a percentage of the GDP) have been higher than the EU average since the beginning of the 1990s (Goerg and Ruane 2000, p. 408). The FDI stock per capita almost exceeded the EU average fivefold in the year 2000.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD   109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Notes

  1. 1.

    See Fig. 8.1 in Appendix.

  2. 2.

    The EU average of the share of workers in foreign firms is only 19%.

  3. 3.

    The activities remain in both cases (Exports or FDI) inside the firm. Only a few papers of the New Trade Theory try to include internalisation aspects, see e.g. Ethier and Markusen (1996).

  4. 4.

    This standard model is used by many authors. See e.g. Markusen (2002), Chap. 2.

  5. 5.

    There are still fix costs by producing the additional export volume in the parent country, but these would arise in any internationalisation form and could be neglected. Additionally, we assume no capacity limit in the affiliates here and in following chapters.

  6. 6.

    So, the tariff-jumping-gain is not any longer primary argument for horizontal FDI in many current papers, see for example Pontes (2001).

  7. 7.

    The existence of similar factor costs is necessary in simple models, but trade costs play only a secondary role in reaching customer proximity or securing and enlarging market shares. In these cases different factor costs between the countries are also possible.

  8. 8.

    For more information about location advantages see e.g. UNCTAD (1998), Chap. 4.

  9. 9.

    Thus, a distinction between plant level and firm level economies of scale is important.

  10. 10.

    The Helpman-Model does not contain the assumptions of the OLI-Paradigm, but allows focusing on factor price differentiation and their effects.

  11. 11.

    Under assumption of a lack of demand in the host country there are more than two production stages possible. In that case, the home country or a third country would process the production.

  12. 12.

    All other gains of the firm are equal in all internationalisation decisions (similar to the horizontal FDI model), whereby they could be neglected.

  13. 13.

    In the original paper of Helpman (1984) trade costs don’t exist, the motivation for FDI is due to the lack of fully factor price equalization through trade.

  14. 14.

    The firm level economies of scale could be relative high, but are not critical for the internationalisation decision.

  15. 15.

    That shows certain parallels to horizontal FDI: there is a similar factor endowment necessary for duplicating some part of the production process in a second location.

  16. 16.

    For the data see different publications of Central Statistics Office (CSO) Ireland.

  17. 17.

    The population of Ireland has only a share of 1% of the whole EU population, the Irish GDP adds only 1.5% to the EU-GDP. See Eurostat data base.

  18. 18.

    GNP is used here as it excludes the profits earned by foreign firms producing in Ireland. The GDP per head is still higher: Ireland has reached the EU average in GDP per capita since 1997.

  19. 19.

    See European Commission, Eurostat Yearbooks in different years. The sharp increase in 2005 is partly due to the decrease of the EU average through the EU Enlargement in 2004.

  20. 20.

    The average expenditures of a household are above EU average. See Eurostat data base.

  21. 21.

    This development is partly due to an agreement between the government, firms and labour unions, which arranged wage restraints.

  22. 22.

    In 2000, about 80% of the production of foreign firms are from US-firms, see Table A2 in Appendix. New Data of FDI shows the EU, in particular Netherlands, as the important FDI-donor. These inflows arise basically of a few banks. These utilize location advantages (particularly the low tax rate) in Ireland, but don’t play a decisive role in production; employment and the Irish development as well as they can’t explain the high FDI inflows in the 1990s.

  23. 23.

    See Table A2 in Appendix.

  24. 24.

    See Table A2 in Appendix. The FDI inflows from United Kingdom were above all lower in the 1990s; see Fig. A3 in Appendix.

  25. 25.

    I still assume that the capacity of an affiliate is unlimited. If there is a natural limit the firm could decide to set up a second plant.

  26. 26.

    In the Export-platform model transport costs are part of the trade costs (t = b + s).

  27. 27.

    In the 1960s, Ireland still had very low FDI inflows.

  28. 28.

    The geographical and cultural proximity to a host country are crucial determinants for a potential investor.

  29. 29.

    The EU-Enlargement was indeed in 2004, but preferential agreements between the EU and individual states exist. In addition to the announcement of EU-accession these cause to the effects explained earlier before the accession in 2004.

References

  • Barba Navaretti, G., & Venables, A. J. (2004). Multinational firms in the world economy. Princeton, NY: Princeton University Press.

    Google Scholar 

  • Barry, F. (1999). Understanding Ireland’s economic growth. Basingstoke: Macmillan.

    Book  Google Scholar 

  • Barry, F. (2004). Export-platform FDI: the Irish experience. EIB Papers, 9, 8–37.

    Google Scholar 

  • Barry, F., Bradley, J., & O’malley, E. (1999). Indigenous and foreign industry: characteristics and performance. In F. BARRY (Ed.), Understanding Ireland’s economic growth. Basingstoke: Macmillan.

    Chapter  Google Scholar 

  • Barry, F., Goerg, H., & McDowell, A. (2003). Outward FDI and the investment development path of a late industrializing economy. Evidence from Ireland. Regional Studies, 37, 341–349.

    Article  Google Scholar 

  • Brainard, S.L. (1993), A simple theory of multinational corporations and trade with a trade-off between proximity and concentration, NBER Working Paper No. 4269.

    Google Scholar 

  • Buckley, P. J. (2004). Regional integration and FDI in a globalized world economy. In L. Oxelheim & P. N. Ghauri (Eds.), EU and the race for FDI in Europe. Amsterdam: Elsevier.

    Google Scholar 

  • Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. London: Macmillan.

    Google Scholar 

  • Carr, D. L., Markusen, J. R., & Maskus, K. E. (2001). Estimating the knowledge-capital model of the multinational enterprise. American Economic Review, 91, 693–708.

    Article  Google Scholar 

  • Dunning, J. H. (1981). Explaining the international direct investment position of countries: towards a dynamic or developmental approach. Weltwirtschaftliches Archiv, 117, 30–64.

    Article  Google Scholar 

  • Dunning, J. H. (1993). Multinational enterprises and the global economy. Wokingham: Addison-Wesley.

    Google Scholar 

  • Ekholm, K., Forslid, R. and Markusen, J.R. (2003), Export-Platform Foreign Direct Investment, NBER Working Paper No. 9517.

    Google Scholar 

  • Ethier, W. F., & Markusen, J. R. (1996). Multinational firms, technology diffusion and trade. Journal of International Economics, 41, 1–28.

    Article  Google Scholar 

  • Goerg, H., & Ruane, F. (2000). European integration and peripherality: lessons from the Irish experience. The World Economy, 23, 405–421.

    Article  Google Scholar 

  • Gray, A. W. (1997). International perspectives on the Irish economy. Dublin: Indecon Economic Consultants.

    Google Scholar 

  • Helpman, E. (1984). A simple theory of international trade with multinational corporations. Journal of Political Economy, 92, 451–471.

    Article  Google Scholar 

  • Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Exports versus FDI with heterogeneous firms. American Economic Review, 94, 300–316.

    Article  Google Scholar 

  • Hymer, S. H. (1976). The international operations of national firms: a study of direct foreign investment. Cambridge: MIT Press.

    Google Scholar 

  • Krugman, P. (1997). Good news from Ireland: a geographical perspective. In A. W. Gray (Ed.), International perspectives on the Irish economy. Dublin: Indecon Economic Consultants.

    Google Scholar 

  • Krugman, P., & Venables, A. J. (1995). Globalization and the inequality of Nations. Quarterly Journal of Economics, 110, 857–880.

    Article  Google Scholar 

  • Markusen, J. R. (1984). Multinationals, multi-plant economies, and the gains from trade. Journal of International Economics, 16, 205–226.

    Article  Google Scholar 

  • Markusen, J. R. (2002). Multinational firms and the theory of international trade. Cambridge: MIT Press.

    Google Scholar 

  • Markusen, J. R., & Venables, A. J. (1998). Multinational firms and the new trade theory. Journal of International Economics, 46, 183–203.

    Article  Google Scholar 

  • Markusen, J. R., & Venables, A. J. (2000). The theory of endowment, intra-industry and multinational trade. Journal of International Economics, 52, 209–234.

    Article  Google Scholar 

  • Neary, J. P. (2002). Foreign direct investment and the single market. The Manchester School, 70, 291–314.

    Article  Google Scholar 

  • O’connor, T. (2001), FDI and indigenous industry in Ireland: review of evidence, ESRC Programme Working Paper No. 22/01.

    Google Scholar 

  • OECD. (2001). Economic surveys – Ireland 2001. Paris: OECD Press.

    Book  Google Scholar 

  • Pavelin, S., & Barry, F. (2005). The single market and the geographical diversification of leading firms in the EU. The Economic and Social Review, 36, 1–17.

    Google Scholar 

  • Pontes, J. P. (2001). Location of FDI in a regional integration area. Economic Bulletin, 8, 1–9.

    Google Scholar 

  • Protsenko, A. (2004). Vertical and horizontal foreign direct investment in transition countries. München: Diss.

    Google Scholar 

  • Roller, A. (1999). Multinationale Unternehmen in Irland. Wiesbaden: Gabler.

    Google Scholar 

  • UNCTAD (1998), World Investment Report 1998: Trends and Determinants, New York, Genf: United Nations Publications.

    Google Scholar 

  • UNCTAD (2002), World Investment Report 2002: Transnational Corporations and the Export Competitiveness, New York, Genf: United Nations Publications.

    Google Scholar 

  • UNCTAD (2005), World Investment Report 2005: TNCs and the Internalization of R&D, New York, Genf: United Nations Publications.

    Google Scholar 

  • Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 10, 190–207.

    Article  Google Scholar 

  • Zhang, K. H., & Markusen, J. R. (1998). Vertical multinationals and host country characteristics. Journal of Development Economics, 59, 233–252.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Georg-August-University Göttingen, Göttingen, Germany

    Mareike Koeller

Authors
  1. Mareike Koeller
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Europäisches Institut für Internationale, Wirtschaftsbeziehungen (EIIW) e.V., Bergische Universität Wuppertal, Rainer-Gruenter-Straße 21, Wuppertal, 42119, Germany

    Paul J.J. Welfens

  2. Dept. Economics, University of Birmingham, Edgbaston, Birmingham, B15 2TT, United Kingdom

    Cillian Ryan

Appendix

Appendix

Fig. 8.1
figure 1_8

FDI-stock per capita (in US-$), 1980–2004 Source: FDI-Data from UNCTAD (2005), pp. 308; Population data from Eurostat; Own calculation

Full size image
Fig. 8.2
figure 2_8

FDI-Inflows from OECD-countries to Ireland Source: OECD (2001), p. 21

Full size image
Table 8.4 Domestic and foreign firms in manufacturing, 2000
Full size table

Rights and permissions

Reprints and permissions

Copyright information

© 2011 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Koeller, M. (2011). Different Modes of Foreign Direct Investment in Ireland: A Theoretical Analysis. In: Welfens, P., Ryan, C. (eds) Financial Market Integration and Growth. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-16274-9_8

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-16274-9_8

  • Published:

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-16273-2

  • Online ISBN: 978-3-642-16274-9

  • eBook Packages: Business and EconomicsEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation