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The Main Features of Ireland's Trade

Seminar Paper 2006 23 Pages

Business economics - Economic Policy

Excerpt

Table of content

Introduction

1. Ireland’s way to an open economy
1.1 The Export Led Growth and FDI Promotion Phase
1.2 The Value-Added Growth Phase since 1980

2. Influence of Trade on Ireland’s Key Economic Figures
2.1 Trade and Economic Growth
2.1 Influence of Trade on Employment and Net Output
2.2 Influence of Trade on Labour Productivity

3. Overview of Irish Trade
3.1 Merchandise Trade
3.2 Services Trade
3.3 Foreign Direct Investment

4. Conclusion

Abbreviations and Symbols

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Introduction

After several years of continuous growth, Ireland’s GDP value managed to grow even further in the course of 2005, rising by 5.1 percent between 2004 and 2005. Since trade has accounted for over half of GDP since 1990, it has been a major contributor to Ireland’s expanding economy (OECD 2006).

The following essay will hence “identify and discuss the main features of Ireland’s trade”. Within the topic chapter 1 focuses on how Ireland has become one of the most open economies in OECD countries and thereby could attract multinational companies and FDI. Chapter 2 will outline the influence of trade on economic growth, employment, net output and labour productivity. Chapter 3 will give a brief overview of Ireland’s current merchandise and service trade as well as FDI in- and outflows. Chapter 4 concludes the essay by summing up the most important points and by assessing potential future trade of Ireland.

1. Ireland’s way to an open economy

Forfás (2006) states that Ireland continues to be one of the most open economies in OECD-countries in terms of trade performance. However, it took decades until Ireland arrived at being the fourth most globalised country in the world with a level of FDI, relative to the size of the economy, being one of the highest in the world (Industrial Development Agency 2005).

1.1 The Export Led Growth and FDI Promotion Phase

After 20 years of protectionism and economic nationalism, Ireland’s political attitude towards international trade changed in the late 1950s. Key elements of this “Export Led Growth and FDI Promotion phase” (Newman and O’Hagan 2005 p166) until the early 1980s were a gradual shift to free trade in manufactured goods. First, by the reduction and eventually phasing out of tariffs and quotas with the Anglo-Irish Free Trade Area Agreement in 1966, second by Ireland’s entry into the EC in 1973 and third by the full adjustment to EC tariffs in 1978. The reduced tariffs increased the attractiveness of Ireland as a low cost production base for foreign companies. Furthermore, Ireland’s government determined certain business sectors as target sectors for foreign investment, including electronics, medical devices, pharmaceuticals and later internationally traded services (Newman and O’Hagan 2005). These sectors were suitable for international trade because of low transportation cost and high productivity potential.

In addition, foreign firms were attracted to Ireland, among others, because of its low corporation tax of 12.5 percent and its corporate tax relief on profits generated on export sales (The Economist Intelligence Unit 2005). For non-EC companies, mainly from the US, Ireland was an attractive investment option as an English speaking country, which provided access to the EC (Leddin and Walsh 2003).

1.2 The Value-Added Growth Phase since 1980

By the 1980s, many of the economic key objectives had been achieved, namely an expanding economy, a sectoral shift from agriculture to manufacturing employment and the attraction of FDI. However, Irish companies were still selling most of their output on the Irish market and faced augmented competition with imports from less developed countries. In addition, foreign-owned companies in the Irish high tech sectors encountered increased competition in global markets and a fast changing environment regarding products and processes. These concerns lead to a major review of industrial policy, namely the “Telesis Report” in 1982, which provided a basis for the so-called “Value-Added Growth” phase starting in the early 1980s (Newman and O’Hagan 2005 p168).

The main objective of this phase was to increase productivity in Ireland. Therefore policy extended the range of target development sectors, which included internationally traded services and products with high productivity. It also promoted more R&D intensive production and focused on the improvement of the operational environment such as infrastructure and telecommunications, which was partially financed by EU funding.[1] The first key landmark event in this phase has been the neutralising of sectoral biases in the corporate tax system in 1982 as the rule was an infringement of the Treaty of Rome. This ensured that import substitutes were given the same low tax rates as exports. A second key issue was the establishment of the IFSC in Dublin in 1987, which created an important service sector employment. A third landmark was the settling of Intel and Microsoft in Ireland, which gave a clear signal to other computer companies looking for a suitable location within the EU. Achievements during the 1980s were an increasing share of foreign companies in manufacturing sector employment, a decline in agricultural employment, reaching 9 percent in 1990, and a stabilising share of industrial employment at 35 percent (Newman and O’Hagan 2005).

2. Influence of Trade on Ireland’s Key Economic Figures

From chapter one, it becomes clear that since the 1950s the attraction of inward-investment by export-oriented multinationals and thereby growth and employment creation have been the priority for Ireland’s industrial policy. In the 1990s, Ireland had arrived at its objectives. By the second half of the decade, the Irish economy expanded by almost 10 percent a year driven by a rapid growth of labour force and high levels of FDI in high-growth, high-technology sectors including IT, financial services, chemicals and pharmaceuticals (National Treasury Management Agency 2006). This chapter will now assess the influence of trade on economic growth, employment, labour productivity and net output.

2.1 Trade and Economic Growth

Ireland’s economy expanded significantly, particularly during the “Celtic Tiger” period between 1994 and 2000. As in figure 1, compared to the years 1997 to 2002, Ireland’s growth rate could not maintain its high level, however the GDP still rose by 5.1 percent between 2004 and 2005, exceeding OECD averages by far.

Figure 1: Growth in GDP & GNP in Ireland, Compared to OECD Average, 1990-2005

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Source: Forfás 2006

Published data also show that growth in the GDP is higher than growth in the GNP since the second half of the 1990s. This is mainly due to the repatriation of profits and royalty payments by multinational firms based in Ireland (Economist Intelligence Unit 2005).

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[1] During the period 1973 to 2001, Ireland’s total net receipts from the EU amounted to €33.85bn, an annual average of around €1.2bn or 3.9 percent of GNP (Leddin and Walsh 2003). However, this assignment will not further focus on EU funding even if it did raise Ireland’s growth rate since the 1970s, given the scope of the essay.

Details

Pages
23
Year
2006
ISBN (eBook)
9783638689731
ISBN (Book)
9783638691697
File size
597 KB
Language
English
Catalog Number
v71943
Institution / College
Dublin City University – Business School
Grade
1,0
Tags
Main Features Ireland Trade Course International Business

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Title: The Main Features of Ireland's Trade