In the 8th annual Ernst & Young European Attractiveness Survey, Ireland’s attractive position for foreign direct investment (FDI) in Europe has felt to 10th in 2009. However, Ireland still attracts FDI that bases on political economic perspective. This essay will discuss factors that help Ireland to create a center of FDI attention such as political stability, low taxes rates, economic growth, a transparent judicial system, the workforce, cooperative labour relations.
1.Ireland from a failure to a success Inefficient institutions and a mixture of poor policy choices were causes that Ireland was underperformance from the 1950’s to the late 1980’s (Honohan, 2004). Since the late 1980s economic fortunes of Ireland have been transformed by the fiscal stabilisation, the improvement in telecommunications, the promotion of competition, education, wage moderation and EU Structural Funds, Ireland has been succeeded (O’Connor, Mangan, ; Cullen, 2006). 2. Political system:Political stability also attracts FDI because it helps to predict the country’s business environment in long term. Moreover, the investments are more guaranteed steady returns and low risks.
The Irish government is overtly committed to attracting FDI by keeping low taxes and minimum regulations. Low tax rate policies attract FDI inflow because the firms can reduce the cost of capital. A correlation between corporate tax rates and FDI inflow was found in a study that FDI might decrease by 1% as corporate tax rate increase 1% (Agostini, 2007).Also, the tax rate is lower other countries that they are competing will have an effective tax incentives which results in a study by the Foreign Investment Advisory Service (2006) 3.
Economic system: Ireland’s GDP attracts FDI because it is almost highest comparing to other Organisation for Economic Co-operation and Development (OECD) countries (OECD Economic Outlook, 2002). These are due to Ireland have a stable economic environment which is created by the flexibility of the government’s economic policies. There is an interaction between GDP and FDI. While FDI ncourage growth, GDP growth attracts FDI inflow (Calliano ; Carpano, 2000). In a survey of the Global Economic Forum (1997), GDP is used to measure the host country market size which is considered as the most important factor that affects the firm’s investment location decision. The results suggest that “the larger the market, the greater the FDI inflow, other things equal”. Infrastructure in Ireland faced some difficulties but some significant positive effects have been found to attract FDI (Amaro ; Miles, 2006). Ireland must focus on the specification of world level infrastructure to compete other countries.
However, the availability of modern, efficient and high quality transport systems in Ireland still continue to attract FDI inflow. Although infrastructure insufficiency has been occurred since the rising population and activities which restrict the growth of productivity, the Irish government has taken about 5% of the nation income for public investment which is a significant infrastructure programme for the next decade (Economic Survey of Ireland, 2006). This investment brings to Ireland a modern infrastructure which improves public services, supports the economy and improves the investment climate for FDI.This financially supports the cost of total foreign investment, thus increasing the rate of return (Amaro ; Miles, 2006).
Out of 41 countries in the European region, Ireland’s economic freedom index is ranked the 2nd freest economy in 2007. The economic freedom improves income equality in certain circumstance and produce economic growth (Berggre, 2003). Wealth may increase due to the growth that economic freedom produce when maintaining the high growth rates (Caetano ; Caleiro, 2009) 4.
Legal system The strong of Ireland’s legal system makes it a good location for exploiting and protecting intellectual property.To binding international arbitration when the investment disputes between the state and foreign investors occur, the Irish government are willing to agree as a member of International Centre for the Settlement of Investment Disputes. Government less bureaucracy is the other attractiveness is Irish. FDI inflow usually avoid investing in countries that have high corruption levels because corruption has negative effects on economic performance such as affecting the costs of investment operations (Al-Sadig, 2009). Specially, corruption is not a arrier for FDI in Ireland due to the legislation and convention relate to corruption and anti-bribery such as the Prevention of Corruption (Amendment) Act 2001, the UN Convention on Corruption in 2003. Ireland also joins in the OECD Working Group on Bribery and the Group of States Against Corruption (GRECO).
Moreover, the government proceed bureaucratic procedures reasonably, transparent and efficiently with pro-business environment. Regulations and laws are proposed in draft form so that public comment, including representative associations for foreign companies. . The Irish employees attract FDI The Irish employees attract FDI because of English Speaking Workforce, low wage and well-educated. First, English speaking is a major attractiveness of the Irish workforce as FDI mostly from US.
Thus, training and information exchange between and within firms are easier. Moreover, there is more engaging for the high skill US employees to work in Ireland due to language compatibility. They will also not face language difficulties when they shop, dine, and hang out (Niehoff, Maciocha, 2008).
The well-educated of Irish workers is another attractiveness for FDI in Ireland. The government supports efficiently for educational system more than 13% of its budget (Calliano ; Carpano, 2000). This highly contributes to the labour force quality (Barnes, 2010). The low wage is also attractiveness for FDI in Ireland. Since the national partnership agreements between the government and workers were recognized, the workers agreed to exchange receiving lower wage increase to tax cuts.Both firms and workers have benefit from this agreement such as workers have brought a large rising in real “take-home pay” and firms have been able to contract high skilled workers at a low cost.
The low labour cost alone may be no longer attractive, firms is more attractive real productivity which can be gained by innovation and skill. Therefore, Irish workforce is attractive FDI by low cost, high education, and language compatibility. In conclusion, the cooperative labour relations, the workforce, transparent legal system, economic growth, low taxes rates, and political stability help Ireland attract more FDI.