The Celtic Tiger owes its existence to foreign direct investment strategies implemented by IDA Ireland, according to research published recently in the Journal of International Business.

The study, which was carried out by Prof Colm Kearney and Dr Frank Barry, showed that IDA Ireland's policy of targeting foreign multinational companies during the 25-year period from 1974 to 1999, played a major role in transforming the economy.

During this time, the State agency allocated more generous grants to foreign companies in fast-growing, high technology sectors such as chemicals, electrical and computer equipment, and pharmaceuticals, at the expense of more traditional sectors such as food and clothing.

While these high technology sectors typically exhibit faster rates of growth, they are generally more volatile than indigenous sectors. By applying portfolio optimisation theory commonly used by fund managers, Prof Kearney and Dr Barry showed that by targeting companies in high-growth sectors, IDA Ireland helped to create a more diversified manufacturing sector. This in turn enabled the economy to grow rapidly without an increase in risk.