Foreign Direct Investment (FDI) Policy As a Stimulator to Irish Economy Had Several Drawbacks

Summary
While Ireland has been extremely successful at attracting inward investment, facts and figures suggest that too much focus has been placed on foreign direct investment (FDI), to the detriment of the domestic economy. Since the influx of foreign companies in the 1960s FDI has continued to make important contributions to the Irish economy, however Ireland’s over reliance on FDI as a stimulator of economic growth has not been without its drawbacks, which will be especially severe in the coming future. The policy led to a yawning gap between Ireland’s GDP and GNP, lead to a low investment share of Irish national income, increased transfer pricing and instigated high dependence on foreign firms and economies.
Background
Ireland is one of the most successful countries in the European Union (EU) for attracting FDI and the “Celtic Tiger” era of the 1990’s was largely due to these investments and increased inflows to the country. The country was able to attract enormous FDI due to a low corporation tax rate, access to a skilled low wage multilingual labour availability, geographical benefits, fiscal and political stability, ease of doing business and access to European Union (EU) markets. Instability from overreliance on multinationals * High dependency of Irish manufacturing on foreign MNCs is the major source of instability for the economy. * The danger is that external circumstances could change in such a way that the economy over a very short period of time loses its attractiveness as a base for multinational investment, entailing substantial adjustment costs, while the dangers of a catastrophic collapse in the international competitiveness of indigenous industry appear more remote. * Exhibit 2 clearly illustrates a sharp fall in FDI in 2001, due