Posted on: 21 August 2006
The IDA strategy of targeting foreign Multinational Companies (MNCs) in fast growing high technology sectors led to the creation of the Celtic Tiger, according to new research just published by Trinity College’s Professor of International Business, Colm Kearney in the Journal of International Business Studies. This strategy played a major factor in Ireland’s industrial restructuring in the past 25-years and provides a role model for policy makers world-wide.
Over 1,050 foreign MNCs have located in Ireland. Their presence has contributed significantly to transforming a largely agricultural developing country into the knowledge-based Celtic Tiger that we know today.
According to Kearney and his co-author, Frank Barry, UCD’s senior lecturer in economics, IDA Ireland targeted four high technology sectors over a 25-year period which significantly transformed Ireland’s economy. Those sectors were chemicals, rubber and plastics; office, computer equipment and electrical; pharmaceuticals; and professional instruments. Meanwhile, the state agency was less generous in its grants to the more traditional sectors such as food, clothing, printing, iron and steel¹.
The researchers show that throughout the 25-year period from 1974-99, the sectors targeted by IDA Ireland for the most generous grant allocations correspond closely with the sectors into which most MNC activity has been attracted, and the sectors that have not been targeted have experienced declining MNC involvement.
Barry and Kearney have shown for the first time that a policy of deliberately targeting foreign MNCs in fast-growing, high technology sectors can create a more diversified host country that can sustain faster job growth.
IDA Ireland’s strategy is not dissimilar to that applied by astute portfolio managers of pension funds. The state agency has picked high growth, but volatile sectors. While these sectors vary imperfectly with each other and with the indigenous sectors, the end result is that Ireland’s Celtic Tiger economy is a better diversified mix of sectors that can grow faster over time without a commensurate rise in risk.
The researchers applied the finance theory of portfolio optimisation in their research. Kearney and Barry’s findings show that an appropriate mix of foreign MNCs can help the host country achieve a more complete diversification of its industrial structure, allowing the economy to grow faster while minimising risk.
Notes to the editor:
1. Throughout the 25-year period from 1974-99, grant payments per job in the office, computer equipment and electrical sector have been seven times as large as in the paper, printing and publishing sector. In the 1970s, grant payments per job in the chemicals, rubber and plastics sector, the pharmaceuticals sector, and in the professional instruments sector, were 12 times, 10 times, and nine times respectively the amount paid to the paper, printing and publishing sector.
F Barry and C Kearney, (2006), MNEs and Industrial Structure in Host Countries: A Portfolio Analysis of Irish Manufacturing, Journal of International Business Studies, Vol 37, 392-406
