Foreign Direct Investment in Ireland under Consideration of the Financial Services Sector in particular

Bachelorarbeit von Andreas Epperlein

Abstract:

This dissertation examines the critical importance of foreign direct investment in the growth of Ireland. It explains the reasons for Ireland’s success and identifies the key steps in the history. The analysis is carried out in terms of the role of the Irish government policy in promoting foreign direct investment. Without the influence of foreign direct investment inflows, the economy would not have grown to the extent as it has. This paper will also show how important foreign direct investment is for the Irish economy in the future. The paper describes several theories about foreign direct investment. It addresses the advantages and disadvantages. More in depth this paper investigates the determinants of financial services sector investments abroad. It will also be shown how the Industrial Development Authority as an agency and the International Financial Services Centre contributed to Ireland’s success. The example Hypo Real Estate Bank International illustrates how an investment in Ireland succeeded. This paper should attract readers with an interest in the Irish history and economy, in the role of foreign direct investment for a country’s economy, or in financial services sector investments abroad.

Introduction:

O’Connor and Forde (2003) refer to George Bernard Shaw, who quipped in the 1930s, that he hoped to be in Ireland on the day the world ended, because the Irish were always 50 years behind the times. Over 70 years later, the same can not be said. With an economy growing at a rate consistently above the EU average, Ireland is one of the most favoured locations for foreign direct investment in Europe by multinational corporations. Ireland has been transformed over the recent years. It has witnessed an economic miracle. There has been significant discussion in the business, academic, and popular press about the ‘Celtic Tiger’. Since 1987, there has been a sustained and well-balanced economic boom. This remarkable performance has been in complete contrast to the former development since the foundation of the state in 1922. The boom has changed the country. Ireland has become one of the leading European countries in economic development. One major reason for the success was the change in legislation and thus, a huge increase of foreign direct investment in Ireland followed by economic growth and wealth.

After the introduction, chapter two starts with a description of the recent economic development in Ireland. Then, the reasons for Ireland’s success will be identified and the Irish tax system as one main reason for the success will be illustrated. This is followed by the question: How sustainable is Ireland's success?

In chapter three this paper addresses the questions: What is foreign direct investment, how does it influence a country, and why is it important? The author also explains theories about foreign direct investment and Greenfield investment in particular. From an international finance and macroeconomic perspective, foreign direct investment is seen as a specific form of the flow of capital across national borders. Therefore, the determinants of the flows of investment are of great interest. In addition, the consequences to home and host country are the focus of a critical examination. Next, the focal point will be the services sector. This paper aims to explain the determinants of the financial services sector for investment abroad. In the end of this chapter, the author gives recommendations for foreign direct investment and illustrates future expectations. The fourth chapter outlines the impact of foreign direct investment in Ireland on economic growth and wealth. It will show that foreign direct investment as the driving force is primarily a success of the IDA Ireland.

The specific content in chapter five is concerned with investments of financial services sector companies abroad supported by the example of Hypo Real Estate Bank International which invested in Ireland. The purpose of this chapter is to show the connection between theory about foreign direct investment in the financial services sector and a successful example in the International Financial Services Centre. Finally, the last chapter outlines the author’s recommendations and conclusions.

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