On Tuesday 19 January 2021, the IDA published a new report, jointly developed with the OECD, that examines the impact of foreign direct investment (FDI) attracted to Ireland from 2006 to 2016 and provides an overview of the direct contribution and spillover effects of this investment on the local economy.

The analysis pre-dates the COVID-19 pandemic and does not take account of the impact of the pandemic disruption on foreign investment in Ireland. 

The report has provided background research and analysis for the development of IDA Ireland’s new strategy. The report: 

• examines the role of FDI in Ireland’s trade and GVC integration; 

• examines the role of FDI for productivity and labour market outcomes; 

• analyses foreign MNEs’ productivity dynamics from 2006 to 2016; 

• profiles the factors driving spillovers from FDI in Ireland. 

The report builds on OECD work taking place under the FDI Qualities Initiative. The report was launched at an event hosted by the Institute for International and European Affairs (IIEA) in partnership with IDA Ireland. 

Key Conclusions and Policy Implications 

• The study shows that foreign investment played a key role in assisting Ireland to recover from the financial crisis and subsequent “great recession” of 2007-2009. In 2020, the foreign-owned sector in Ireland demonstrated a remarkable resilience in the face of the COVID-19 pandemic and all the indications are that the portfolio of foreign investors managed by IDA Ireland will register positive net employment growth for 2020. 

• The study has highlighted that foreign investment in Ireland is deeply integrated into Global Value Chains and is a major contributor to trade, productivity, innovation, value-added and employment. Multinational Enterprises (MNEs) operating in Ireland are one of the principal reasons why the country is among the most globalised and export-oriented economies in the world. 

• The analysis also makes clear that the MNEs operating in Ireland are a heterogeneous group comprising a sub-group of “frontier firms” whose performance across a range of variables is a multiple of that of the median foreign affiliate. The foreign sector is an important source of knowledge and other spillovers to the domestic economy, while the links between MNEs and domestic firms are in line with the experience of other small open economies.  

• Limitations on the “absorptive capacity” of domestic enterprises (that are limited by their size and the capabilities gap between themselves and foreign firms), the very high export orientation of MNEs and the practical consequences of participation in global value chains arguably acts as a constraint on further “embeddedness” within the domestic economy. 

• While the study identifies and acknowledges the numerous benefits of foreign investment in Ireland, it also highlights the presence of a degree of “concentration risk”. Many of the benefits of foreign investment are derived from a small number of sectors especially Information and Communications and Biopharmaceuticals and a small number of home countries particularly the United States. In this context, IDA Ireland should continue its commitment to portfolio diversification in terms of the sectoral and geographical sources of future investment. 

• Continuing and strengthening a collaborative approach between IDA Ireland and other government agencies in charge of enterprise development, trade, innovation, and skills development is important to design and implement policies that support the development of domestic firms’ capabilities and linkages. 

More information can be found on the IDA and the OECD websites.