Based on several, generally used economic indicators, Ireland is an industrially advanced economy.
It has a significant presence in high technology, which requires quality industrial skills. It is very export-oriented and its goods exports are dominated by products such as chemicals and pharmaceuticals, and its services exports include computer and financial services.
And Ireland’s productivity is the highest in the world.
However, most of this good economic landscape is due to inward foreign direct investment by multinationals, mostly from the US.
The overall, indigenous or local industrial sector, despite many notable individual successes, plays a subsidiary role.
Some multinationals, such as Tesco, Aldi and Lidl, come to Ireland to sell in the domestic market.
Others, the subject of this article, use Ireland as a base to supply or service other countries, in the EU and beyond. These multinationals are encouraged to come to Ireland by the IDA and include global companies, such as Intel, Pfizer, Google, and Facebook. They can be described as IDA-type or agency multinationals.
IDA-type multinationals dominate in exports, accounting for 85% of the value of all manufactured exports, 95% of the value of the exports from the agency-supported international services, and 99% of all chemicals and pharmaceutical exports.
Without the multinationals, Ireland’s export performance would be much weaker, even though the data artificially boost their contribution. Multinational exports are more import-intensive than indigenous exports.
A multinational export of €100 generates a €10.60 impact on the economy, when imports of goods and services and repatriated profits are taken into account. An indigenous export of €100 generates an impact of €60.50 on the economy. And due to tax and multinational accounting issues, there is a high chance that exports, productivity, and value-added benefits are overstated.
Excluding the effects of repatriated profits and imports, the multinationals generate 61% of the net export earnings from agency-supported enterprises, a still substantial contribution.
IDA-type multinationals employed 223,000 full- and part-time jobs in 2017, or about 10% of all employment. The measure understates the strategic employment significance of multinationals. That’s because total employment includes all activities, including local and public services, while IDA-type multinationals are concentrated in the internationally traded sectors of manufacturing and international services.
And wages are relatively high in the multinationals. They spend €12.3bn annually on payroll and buy €9bn of goods and services from other domestic enterprises. Multinationals spend €5.7bn on services, compared to the €5.4bn spent by indigenous firms. However, the indigenous sector spends €11.6bn on materials, compared to €3.3bn spent by the multinationals, because of the high number of Irish food firms.
The US accounts for 55% of the IDA-supported multinationals and 70% of multinational employment. US firms account for 152,000 Irish jobs, 10 times the level provided by German companies. French multinationals provide 7,000 jobs, and the UK provides 6,000 jobs. The economic contribution of multinationals is substantial, even allowing for the data issues. This illustrates why the Government is firm in resisting EU attempts to change the corporation tax regime.
Anthony Foley is emeritus associate professor of economics at Dublin City University Business School