The Irish economy remains highly reliant on US multinationals, and increasingly at risk of them relocating to eastern Europe, according to a study published yesterday.
In their paper "Globalisation and the Irish Economy" Trinity College economists Philip Lane and Frances Ruane produce previously unpublished data revealing that the US multinational investment accounts for over half of Foreign Direct Investment (FDI) into Ireland.
As well as dominating the export of manufacturing goods, US multinationals in Ireland also dominate certain categories service exports, accounting for 55 per cent of all royalty imports.
International investors in Ireland also tend to earn a higher return here than Irish investors earn abroad.
"Irish FDI overseas earned a yield of 7.5 per cent in 2003, while international investors earned 17.5 per cent on FDI positions in Ireland" it states. "Ireland's export performance is heavily dependant on US firms, which accounted for 77 per cent of total export sales, while Irish-owned firms account for less than 10 per cent," the report states.
It adds that while foreign-owned firms export more than half of their output to other EU countries, the United Kingdom remains the largest foreign market for the Irish manufacturing sector.
While broadly praising Ireland's globalisation experience to date, the report states that Ireland's advantage vis-à-vis emerging competitors is diminishing.
"As the English language becomes the lingua franca and countries in central and eastern Europe and elsewhere adopt lower-tax regimes and pro-FDI strategies, the economic policy priority is to ensure that Ireland retains its status as an investment and an employment friendly destination and establishes new sources of international competitiveness".
The report warns in its conclusion that any downturn in foreign investment could have significant economic consequences.
"Beyond the direct impact on employment and output in those sectors, such a contraction would also reduce tax revenues, in view of the substantial corporation tax payments from the foreign-owned sector."
According to its findings, foreign multinationals accounted paid €2.64 billion in corporation tax during 2002, 55.8 per cent of all corporation tax paid.
