Is Ireland's Growth Sustainable in the Long Term?

In: Business and Management

Submitted By keiragrout
Words 515
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Ireland and the FDI

Is the growth sustainable in the long term?

There are many factors indicating that Ireland’s growth is sustainable in the long term, however, future growth is expected to be more modest than it has previously been. Ireland’s long-term competitiveness is based on an educated, multilingual labour force as well as low wages and tax rates. These friendly policies that prevail will presumably lead to growth and the diversified FDI will also shield against external shocks. In addition, Ireland has an industrial and tax policy, which is consistently very supportive of businesses, regardless of which political party is in power. Ireland’s good transportation logistics and good location also make it easy to move products to major markets in Europe quickly. Ireland’s sound macroeconomic policies will lead to continued growth, therefore, allowing it to maintain its competitive edge over other EU countries.

Alternatively, there are those who believe that, “the Celtic era, with double-digit growth rates, belongs to the past and that competitiveness has deteriorated”. Ireland’s overdependence on FDI makes its economy vulnerable to external shocks. Many believe that the boom was purely a by-product of American growth rather than a self-sustaining, local phenomenon. The foreign sector had limited ties with local businesses and the FDI-focused policy yielded little in terms of creating a vibrant domestic economy. In 1998, statistics showed that 47% of the industrial workforce (generating 82% of industrial output) was employed by foreign-owned firms and that 75% of the FDI came from the U.S. Furthermore, data showed that U.S. foreign affiliates were responsible for 16.5% of Ireland’s GDP. This underperformance of local industries may also affect long-term growth. During the boom, Ireland tagged onto the growth of the U.S., which led to the notion that…...

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