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.
Table of Contents
1 Introduction
2 The Irish economic miracle
2.1 Reasons for Irelands success
2.2 The Irish tax system as one main reason for the success
2.3 How sustainable is Ireland's success?
3 What is foreign direct investment?
3.1 The basics
3.2 Theories about foreign direct investment
3.3 Greenfield investment
3.4 Advantages of foreign direct investment for economies and companies
3.5 Criticism and disadvantages
3.6 Foreign direct investment in the services sector
3.6.1 The services sector in general
3.6.2 The determinants of financial FDI
3.7 Recommendations for foreign direct investment and expectations for the future
4 Foreign direct investment in Ireland as the reason for economic growth and wealth
4.1 Foreign direct investment as the driving force
4.2 IDA Ireland: A key player
4.3 Linkages into the global economy
5 The international financial services sector as an important foreign direct investor in Ireland
5.1 The main location for financial services foreign direct investment - The IFSC
5.2 The successful Hypo Real Estate Bank International connected with the theory
5.2.1 The Hypo Real Estate Group and the Hypo Real Estate Bank International
5.2.2 The experiences of the Hypo Real Estate Bank International
5.3 Other examples in the financial sector
6 Conclusion
Objectives and Topics
This dissertation examines the critical importance of Foreign Direct Investment (FDI) in driving Ireland's economic growth and wealth. It investigates how government policy, historical development, and the establishment of the International Financial Services Centre (IFSC) contributed to the "Celtic Tiger" phenomenon, with a specific focus on the financial services sector and the case of Hypo Real Estate Bank International.
- The impact of Irish government policy and the IDA on attracting FDI.
- Economic theories of FDI and their application in the Irish context.
- The role of the IFSC in transforming Ireland into a financial services hub.
- Determinants of financial FDI and the "follow the client" motivation.
- Challenges and future sustainability of the Irish economic model.
Excerpt from the Book
3.6.2 The determinants of financial FDI
One micro/organisational determinant of financial FDI is information-related, particularly the ‘follow the client’ motivation for financial FDI. Another reason is the common origin as a comparative advantage. There is a broad consensus that this variable plays a significant role in bank’s decision to invest abroad. For example, colonial links and language help explain why banks choose to expand in certain countries and not in others. Bank size is also significant in determining a bank’s decision to invest abroad. There is growing importance of economies of scale as a motive for financial FDI. The international experience, measured by the number of countries a bank operates in and the number of years since it started its operations, is crucially important for banks to expand abroad. Common product and distribution channels are another potential source of efficiencies. International banks from OECD countries prefer to expand in less efficient banking systems. Finally, the risk sharing hypothesis is supported by a number of studies (Herrero and Simón, 2003).
Macroeconomic determinants of FDI are generally classified in two major groups: push (or home-country related factors), and pull (or host country-related ones). Among the push factors, home country growth increases firm’s wealth and relaxes the financial constraint that FDI may face. Another important push factor in the FDI literature is the level of interest rates in the home country. There is a general consensus that high real interest rates hamper FDI. Financial conditions in the home country affect the decision to invest abroad. Expected increases in the home currency postpone FDI from companies. A higher stock market value of firms favours their investment abroad. Finally, another important determinant of financial conditions is the relative access to credit. In contrast with push factors are the pull factors. The host country’s (expected) economic growth is found to be a driving force of international banking. Another related variable is the development of the financial system in the host country. Banks prefer to operate in countries with a relatively developed and not too concentrated financial system. Economic integration between the home and host countries also fosters financial FDI. Macroeconomic volatility, in turn, appears to hamper financial FDI (Herrero and Simón, 2003).
Summary of Chapters
1 Introduction: Provides an overview of Ireland's economic transformation and outlines the research objective regarding the importance of FDI.
2 The Irish economic miracle: Analyzes the historical reasons for Ireland's economic success, including government policy, tax environment, and sustainability.
3 What is foreign direct investment?: Explores the theoretical framework of FDI, including basic definitions, types like Greenfield investment, and determinants, specifically in the services sector.
4 Foreign direct investment in Ireland as the reason for economic growth and wealth: Examines FDI as the driving force behind Ireland's development, highlighting the role of IDA Ireland.
5 The international financial services sector as an important foreign direct investor in Ireland: Investigates the rise of the IFSC, providing a case study of Hypo Real Estate Bank International and mentioning other financial sector examples.
6 Conclusion: Summarizes the key findings, reiterating that Ireland's economic growth was a result of orchestrated efforts and factors like education and the fiscal framework.
Keywords
Foreign Direct Investment, Ireland, Celtic Tiger, Economic Growth, Financial Services, IFSC, IDA Ireland, Greenfield Investment, Tax Policy, Multinational Corporations, Hypo Real Estate Bank, Economic Development, Globalization, Services Sector, Business Strategy.
Frequently Asked Questions
What is the central focus of this dissertation?
The paper examines the importance of Foreign Direct Investment (FDI) in driving Ireland's economic growth, with a specific focus on the financial services sector.
What are the primary themes covered in the work?
Key themes include the historical development of the Irish economy, FDI theories, the role of government agencies like the IDA, and the specific impact of the International Financial Services Centre (IFSC).
What is the primary research goal?
The goal is to explain the reasons for Ireland's economic success and identify how FDI, particularly in the financial services sector, contributed to this growth and how it might be sustained.
Which scientific methodology is utilized?
The paper employs a comprehensive literature review of economic theories and FDI, supplemented by practical case study analysis, specifically focusing on the Hypo Real Estate Bank International.
What topics are discussed in the main body?
The main body covers the theoretical foundations of FDI, the historical and political context of Irish economic growth, the role of the IDA, and a detailed analysis of the IFSC and specific corporate experiences within it.
Which keywords characterize this work?
The most important keywords include Foreign Direct Investment, Ireland, Celtic Tiger, Economic Growth, Financial Services, IFSC, and IDA Ireland.
Why did Hypo Real Estate Bank International choose Dublin?
The choice was driven by the legal framework (common law), the English language, Ireland's membership in the Eurozone, and the ability to operate within the concentrated financial cluster of the IFSC.
Did tax incentives play a role for Hypo Real Estate Bank International?
Surprisingly, according to the manager interviewed, tax was not the primary reason for the decision; other factors like the regulatory relationship and business environment were more influential.
- Quote paper
- Andreas Epperlein (Author), 2004, Foreign direct investment in Ireland under consideration of the financial services sector in particular, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/41054
