Ireland exposed to FDI whims

Ireland’s ability to attract foreign direct investment (FDI) from outside of the EU is more vulnerable to changes in corporate tax rates than any other member state.

A study from the Economic and Social Research Institute (ESRI) estimates that Ireland would attract 4.3% less projects, from outside of the EU, per every 100 if the UK reduced its corporate tax rate from 20% to 19%. 

Similarly, it said that if Ireland’s 12.5% corporate tax rate was increased to just 13.5%, the move would reduce the country’s chance to be chosen as a location for new FDI projects from non-EU countries by 4.6%.

A more competitive corporate tax rate in the UK would reduce Ireland’s attractiveness to non-EU investors, while the reverse would improve our attractiveness, the study said.

“Taken together, these research results indicate that a competitive corporate tax rate is a significant factor in attracting FDI to Ireland, especially from countries outside the EU,” said ESRI associate research professor Iulia Siedschlag.

“This research concludes that in addition to maintaining a competitive corporate tax rate, Ireland’s attractiveness to FDI would benefit from policies aimed at maintaining cost competitiveness and enabling further R&D investment.

“EU and non-EU investors value location characteristics differently. Investors from outside the EU are mainly seeking access to the European Single Market and are more likely to choose locations with low corporate tax rates.

“Intra-EU investments are more likely to be located in countries where the corporate tax is high but where they benefit from other local advantages such as low production costs.”

Dr Siedschlag also suggested that any positive FDI knock-on effect for Ireland should Britain leave the EU, could be minimal.

“Ireland and the UK are perceived to be similar as alternative locations for FDI, in particular by investors from outside the EU and for FDI in the services sector,” she said. “This result suggests that a possible redirection of FDI from the UK to Ireland, in the case of Brexit, would be more likely [to come from] investors from outside the EU and in the services sector.”

Last year, the ESRI said that a Brexit could result in a minimum 20% fall in bilateral trade flows between Ireland and the UK over the long-term.


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