1. The document summarizes the findings of an OECD report that assessed foreign direct investment (FDI) in Ireland. 2. It found that FDI has been a major driver of Ireland's economic growth and integration into global supply chains. However, Ireland's FDI is highly concentrated in a few sectors and origins like the US. 3. The report also examined spillovers from foreign firms to domestic Irish firms and found gaps in capabilities between them, though labor mobility provides some knowledge transfer.

1. FDI QUALITIES
ASSESSMENT OF IRELAND
MAIN FINDINGS
Virtual launch of the report, 19 January 2021
Martin Wermelinger, OECD Investment Division

2. • Under the right conditions, FDI can raise productivity, integration
in GVCs, transfer knowledge and technology, and improve living
standards [and foster gender equality, low carbon transition]
 OECD FDI Qualities initiative
• Report examines the direct contribution and spillover potential of
FDI on the Irish economy
 OECD FDI Qualities Assessment of Ireland
• Report supported the development of IDA’s new strategy
 IDA Ireland’s Driving Recovery & Sustainable Growth Strategy: 2021-2024
Context
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3. • Growth driver – Analysis pre-dates COVID-19 but shows that FDI was key for
Ireland to recover from another big economic crisis – “great recession” of 2007-
2009
• Resilience – IDA results show that sectors in which IDA-supported foreign firms
are concentrated exhibited remarkable resilience in 2020 (e.g. medical goods, IT
services, finance and insurance)
• Promotion and policy – Success is result of FDI targeting by IDA – but also due to
coordination with other agencies (e.g. Science Foundation Ireland, Enterprise
Ireland), supportive government policy, actions of other stakeholders (e.g.
investors).
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Key takeaways (1)

4. • Globalisation – Ireland is one of the most open economies and FDI base deeply
integrates Ireland’s economy in GVCs
• Productivity frontier – Sectors in which IDA supported firms are concentrated
exhibited rapid growth and are associated with higher productivity, R&D
expenditures and wages
• Concentration – Diversification of FDI is limited both in terms of sectors
(manufacturing, information and communications and finance and insurance),
origins (US) and sub-national regions (Dublin) – could expose economy to
macroeconomic risks
• Spillovers – Buy/supply linkages in line with other small, open economies;
extensive labour mobility; remaining gaps with domestics firms across regions
4
Key takeaways (2)

5. 1. ROLE OF FDI IN TRADE AND
INTEGRATION IN GVCS
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6. Positive relationship between export orientation,
GVC integration, and presence of MNEs
– Indicates MNEs can facilitate a country’s
integration in GVCs
1. Export orientation (share of domestic VA that
is exported)
– Ireland is 2nd in OECD
2. GVC integration (foreign VA embodied in a
country’s exports)
– Foreign VA in Irish exports is relatively high
at nearly 50% i.e. backward linkages
3. Presence of MNEs (share of VA accounted for
by foreign MNEs in national GDP)
– Ireland highest in OECD
FDI plays an important role in Ireland’s GVC
integration
Source: OECD TiVA database and Activities of MNEs database; reference year 2014
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7. • Foreign affiliates accounted for growing trade surplus and enabled GVC integration
following the 2008 crisis
– Foreign firms’ exports of value added increased to 39% of GDP by 2015, up from 23% in 2008 –
OECD experienced retrenchment in GVCs
– Exports concentrated and expanding in FDI dominated sectors (e.g. chemicals, medical device;
information and communications - e.g. publishing, IT services; and finance and insurance)
• FDI operations in Ireland positioned at the end of supply chains (e.g. marketing,
distribution, after-sales services, publishing)
– High share of final goods exports
– Share of value added at customer end of GVCs is growing, supporting high-paying jobs in Ireland
• Highly concentrated FDI in terms of origins
– FDI dominated by investors from the US (70% of total in 2017)
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Some more highlights…

8. 8
Profits make a significant contribution to foreign
affiliates’ value added
Exports of value added
For foreign firms, exported value added broken down into labour compensation and profits
• High profits can be due to:
• MNEs shifting intangible
assets to Ireland
• “End of value chain
services” are profitable
• Profits of foreign investors
may not stay in Ireland:
• Efforts for re-investment
and expansion of
investments are
important

9. 2. FDI DIRECT CONTRIBUTIONS TO
PRODUCTION, INNOVATION AND
EMPLOYMENT
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10. • Foreign firms account for 60% of VA (1st
in EU), but only 18% of employment
– FDI is driving labour productivity (11%
annual growth over 2006-16)
– Expansion in Information and
Communication, Manufacturing,
Finance and Insurance (>50% of
GDP from these sectors)
– Shift away from physical production in
manufacturing
– Significant FDI concentration in
Dublin (40% of VA and employment in
2016)
• Foreign affiliates helped recover from
great recession:
– Initial evidence points to similar
pattern during COVID-19 crisis.
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Foreign firms are driving value added and labour
productivity in Ireland
Share of national total, 2015

11. • FDI in Ireland is concentrated in sectors* with
– higher productivity,
– higher business expenditure on R&D, and
– with better employment outcomes (i.e. employment growth, wages/skills)
• 80% of all patents* granted in Ireland were to foreign affiliates
– Foreign firms account for the majority of R&D spending, but a smaller %
invest in R&D
• Continued promotion of technology-intensive activities likely to
be successful
FDI in Ireland concentrated in a few, high-performing
sectors
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* Reference year = 2016

12. • Ireland attracted investments by companies
operating at the global productivity frontier
• Among foreign firms there are substantial
differences, and the distance appears to be
widening
• Firms at or above the 95th percentile are the
national frontier
• Difficult to assess if the Irish affiliates of the
global frontier MNEs are on the global frontier
themselves (would demand internationally
harmonised data)
Productivity dynamics of foreign affiliates: Are all
foreign firms the same?
Selected percentiles of labour productivity
Source: Authors’ calculations on ABSEI data
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13. MNE productivity dynamics: key results from
transition matrices (2006-16)
• In Manufacturing, best performers remain at the top of the productivity distribution, with
highest share of jobs overall
– Exits more than entrants support dynamism, with exits concentrated in lower productivity segments
• In Information and Communication, best performers at the top also supported high shares
of jobs
– But more dynamism in other segments – 55% of lower productivity affiliates moving up the productivity
ladder; and entrants provide important contribution to aggregate productivity growth and jobs
• Best performers are exporting more, have higher investments in R&D and pay higher
salaries
• The MNE sector in Ireland is less dynamic (i.e. less churn) compared to international
evidence, due to lower exit rates and high resilience at the top
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14. 3. FACTORS DRIVING SPILLOVERS
FROM FOREIGN AFFILIATES TO
DOMESTIC FIRMS
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15. • Capabilities gap between Irish firms and foreign MNEs: Performance gap
between Irish firms and foreign MNEs provides an indication of the ability of
domestic firms to adopt foreign technology and benefit from positive FDI
spillovers
• Extent of domestic business linkages: Buy and sell linkages with foreign MNEs
can increase domestic firms’ productivity
– By enabling domestic firms to reduce costs, innovate, etc.
– Potential to increase domestic firms’ participation in GVCs through indirect exporting
• Relevance of labour mobility: when workers move from foreign affiliates to
domestic firms, they might bring knowledge that can enhance the domestic firms’
performance 15
Assessing the potential for indirect impacts or spill-
overs from foreign MNEs to the Irish economy

16. 16
The capabilities gap between foreign MNEs and Irish firms is
considerable in some sectors
A value of the indicator above 0 means that foreign firms
outperform domestic firms in a given metric (e.g.
productivity) in a specific sector, and vice versa.
Bars with ‘red’ borders indicate that domestic value
added in those sectors is low, i.e. the size of the domestic
sector is small.
Bars with ‘yellow’ borders indicate that foreign value
added in those sectors is low.
Agriculture, mining, construction, energy, miscellaneous
manufacturing and financial services are excluded.
+ Regional differences (not in
figure):
Gap in absorptive capacities is
highest in South & East
Source: OECD FDI Qualities Indicators, based on IDA’s Annual Business Survey

17. 17
Buy linkages are less relevant than in other OECD countries
• Foreign affiliates in Ireland source
less locally and their local sourcing
benefits fewer domestic companies
compared to other OECD countries
• Similar to other small open
economies, such as Luxembourg,
Belgium and the Netherlands
• Market size plays an important role
(i.e. smaller market for inputs)
• Declining shares and absolute values
of domestic sourcing over 2008-16
(reverse trend since then)
Sourcing structure and value added of foreign affiliates, 2016

18. • Between 2009 and 2015, more than one out of every four
employees at foreign firms either moved to a domestic firm or
became self-employed.
• More than one in three start up founders previously worked at a
foreign firm.
• Labour mobility within Ireland is also very likely among highly skilled
researchers that have been associated with patents in Ireland. One
out of two inventors changed employer at least once over 2006-16;
most inventors are based in foreign MNEs
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Labour mobility from foreign MNEs to Irish companies
is significant

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Thank you
Martin Wermelinger, Project Manager,
FDI Qualities,
Martin.Wermelinger@oecd.org
Letizia Montinari, Economist, FDI
Qualities,
Letizia.Montinary@oecd.org
For further informationContacts
Policy Framework for Investment
www.oecd.org/investment/pfi.htm
Investment Policy Reviews
www.oecd.org/investment/countryreviews.htm
FDI Qualities
www.oecd.org/investment/fdi-qualities-indicators.htm
Investment Promotion and Facilitation
www.oecd.org/investment/investment-promotion-and-facilitation.htm

20. • We combined a wide range of data sources for this study
• OECD has been improving statistical tools to analyse trade and investment
in global value chains (GVCs)
– Integration of FDI income into Trade in Value Added
– Recent development of the OECD Analytical AMNE Database
• We analysed IDAABSEI and Employment Survey data
• We also complemented the analysis with other FDI and trade related
datasets
 Challenging to perfectly align industry classifications and time coverage
A word on the statistics and data sources
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