US FDI in Ireland

What is US foreign direct investment in Ireland up to? A lot of different things. Some firms are here to produce and ship to the EU, others are here for research purposes, and yes, some are here primarily for tax purposes. This latter group is the one that will be most sensitive to changes in tax policy, both in the US and elsewhere as they plan where to have their income accrue for tax purposes. In a previous post, I argued that the Obama administration’s recent proposals would not have a substantial impact on employment in Ireland. Some have taken this to mean that I am suggesting that there will be little impact on the value of FDI here. Not so. The combination of low Irish tax rates and US tax policy give firms a reason to declare their foreign earned income in Ireland and to reinvest those earnings in order to avoid costly repatriation taxes. Do firms take advantage of this? Anecdotal evidence surely indicates that they do. Data from the US Bureau of Economic Analysis gives us a better insight into how this combination makes Ireland a bit unusual. Using 2006 data (the most recent for which data were available on the website), I was able to construct the following table that gives the top eleven countries by the sales/employee, FDI position/employee, and assets/employee (all numbers are in 1000s of US dollars).



FDI Position/Employee


























Saudi Arabia


United Kingdom










United Arab Emirates









United Arab Emirates









Saudi Arabia



Hong Kong
















Hong Kong




All Countries


All Countries


All Countries














How does Ireland compare? In terms of sales per employee, we rank 4th, behind the tax havens of Bermuda and Barbados and the capital intensive petroleum industry in Saudi Arabia. With nearly $2 million in sales per employee, we have twice that of the Netherlands, another country that has been called out by Obama but which has only $781,100 of sales per employee. Comparing Ireland’s numbers to either the world as a whole, Europe, or the EU25, it is clear that sales per employee here are rather impressive.

Turning to FDI (which is a measure of the stock of investment, including parent equity and – perhaps critical for this discussion – retained earnings) per employee, Ireland falls slightly to 6th place, just behind the Netherlands but quite a bit lower than some of the more aggressive tax havens. Nevertheless, our FDI stock of $189,000 per employee is still far above these numbers for the world or Europe as a whole.

Finally, looking at assets (what you might think of as actual, physical stuff used to make things) per employee, Ireland now falls just out of the top ten with just over $2000 per employee. The top five are still dominated by low tax countries, but what is rather interesting is that Ireland is now just below the number for the world and about a third less than the numbers for Europe and the EU.

What does all of this mean? I can think of two stories that could yield such a pattern. First, US firms in Ireland are far more labor/human capital intensive than most. However, the assets per worker in the US are twice ours whereas the sales per worker are but a quarter of ours (UK sales per worker are $466,000). This would suggest that Irish workers are eight times more productive that a UK worker, something that doesn’t sound entirely correct.

The other explanation is that yes indeed US firms are declaring income here, quite possibly for tax purposes. If US tax policy limits the attractiveness of declaring income here, the sales attributed to Irish workers will go down, and will probably go down quite a bit. Again, however, I suggest that this does not necessarily imply a large reduction in the number of Irish employed by US firms. First, there are the arguments I made in my last previous post. Second, if as these numbers suggest FDI and sales levels are exaggerated for tax purposes, a reduction in them does not reduce the productivity of the Irish worker (who incidentally needs fewer assets than the typical EU worker). Therefore, the return to real activity, as opposed to financial activity, need not decline. This is the difference between declaring income and earning income. A reduction in income declared in Ireland does not necessarily imply a reduction on income earned in Ireland. Where it will matter is when Irish employees are engaged solely with the task of justifying income declaration. One industry with large amounts of investment but few employees is financial services, an industry that makes up 22.4% of Ireland’s US FDI position but has only  3.4% of US firms’ employment here (again illustrating the high numbers per employee that may be resulting from profit shifting). If all of this FDI were lost due to US policy changes, it would not be the employment Armageddon some fear.

So why worry? First, even the loss of 3.4% of employment by US firms still amounts to 3200 jobs, a number that although not crushing certainly hurts. However, the more critical reason to worry is that if there is a decline on income declared in Ireland, this could erode our already worsening budget. That is a serious issue, but one which is beyond this particular post. However, my point here is that the focus on jobs is perhaps misplaced, but most certainly detracts from more important issues such as the revenue implications.

20 replies on “US FDI in Ireland”

The IDA supported 130 investments in Ireland in 2008

Investments came from 35 new clients.

UNCTAD data shows that greenfield investments have been falling for several years.

Greenfield FDI projects in Ireland fell 22% to 114 in 2007, following a decline of 25% in 2006 to 146. Greenfield projects in Romania rose from 116 in 2003 to 366 in 2007 while in the same period, the number of Polish projects rose from 154 to 333.

Almost half of the foreign companies based in Ireland said in a 2008 survey, that they would not choose Ireland again if they were to decide now on where to locate their existing businesses, according to a survey commissioned by IDA Ireland.

The Sunday Independent reported last November that an IDA survey report, which was obtained by Fine Gael TD Leo Varadkar, under Freedom of Information Act, showed that the majority (61%) of the sample of companies would locate in Eastern Europe instead, while almost a quarter (23%) would go to India.

The IFSC is likely to contract in coming years as the US financial sector shrinks.

The missed opportunity during the Celtic Tiger is that we are more dependent on American companies now than we were in 1993.

The big concern about a fall in FDi is that the home-grown tradable goods/services sector will not take up the slack.

Science Foundation expects 30 new local start-ups by 2013 from their massive research funding – – not much to brag about given the 20% survival rate.

Besides, the existing indigenous high tech sector is on a respirator.

“A lot of different things. Some firms are here to produce and ship to the EU, others are here for research purposes, and yes, some are here primarily for tax purposes.”

The tax situation is a relatively important factor in ALL FDI in Ireland. It is sort of funny that you begrudgingly admit that this might be a factor in some decisions. Maybe there are some companies that don’t consider stuff like taxation in making investment decisions, but they are very short lived companies.

If the tax situation changes, this does not only impact upon those companies that are here more or less purely for transfer pricing / taxation reasons. It impacts upon everybody and may change the equations to such an extent that the investments no longer make any sense.

“Nevertheless, our FDI stock of $189 million per employee is still far above these numbers for the world or Europe as a whole.” – You might wanna edit that!

Extremely interesting post. I really hope you’re right about the employment implications of the above figures. Is there any estimates of how much tax revenue we stand to lose if such “profits” flee our country? Furthermore, how quickly do you reckon they can shift out of here?

Anyone for a “leaving town” tax á la Springfield?

You could also turn the argument around and bearing in mind the very small employment per dollar of investment ask the question of why bother putting so uch effort into such a low economic reform.

Perhaps there are other economic benefits apart from employment, but it seems to me that much of the flows of cash through Ireland that occured based on our FDI model went into credit that was use to inflate a property bubble.

There did not appear to be any significant transfer of know-how to the Irish economy that one would expect from the siting of significant numbers of technology companies in Ireland.

Perhaps we should be studying whether or not that this form of FDI is in fact the optimum strategy for Ireland in the future.

“This would suggest that Irish workers are eight times more productive that a UK worker, something that doesn’t sound entirely correct.”

Not Entirely Correct?
What an understatement.
The only thing this observation does is show what a very low validity rating in the tables you extrapulated have.

“Not Entirely Correct?
What an understatement.”

I think Ron Davies may be putting the b in subtle there, Eamonn.

I think this piece is very accurate – US companies in Ireland do many things in Ireland. The main thing is that they service the EMEA market from here. If we have tax issues, it is not with the US rather with our colleagues within the EU as it is taxes arising from sales there are routed through Ireland by way of commissionaire arrangements.

It appears to me that the figures quoted are inflated by the sales of just two companies for the year in question.

Incidentally Section 21 of the Finance Bill is likely to make the problem worse as sales and IP are tied together, but that is perhaps a story in itself.

@Marcus: Thanks for catching that typo. As for how much they contribute to our tax revenues, I don’t know. I’ve been looking and asking to no avail. Colm McCarthy suggested to me that no one breaks down the numbers in that way.

@Eamonn: Like I said, there are two explanations. Explanation 1, about productivity, isn’t believable. That leaves Explanation 2, about profit shifting. Thanks Enda for catching the sarcasm.

@Joe: Again, my emphasis didn’t come through as intended. I have never, ever claimed that taxes don’t matter. I’ve been involved for quite some time in the study of how governments can use taxes to manipulate FDI. If I didn’t believe that there was an impact, I wouldn’t be spending my time on the issue. I do, however, believe that taxes are a part of the overall picture and that their importance varies across firms.

@Michael: Thanks for giving some survey evidence that is in line with my last post which suggested that we are in competition for FDI with the low-tax Eastern European countries, locations that are also going to be impacted by changes in the international tax system. And to follow up on your concerns, I share them with you. If FDI is in Ireland solely for the low tax rate, this is indicative of a major problem because that makes us a one trick pony that is at the mercy of other nations’ tax policies. While we cannot do much about our location or the size of our domestic market, the one thing we could potentially offer is a stock of homegrown innovative firms to work alongside foreign firms. Evidence indicates that this increases inbound investment. Whether or not such a cluster of Irish firms exists is something I do not know (but is a part of some work I’m beginning with folks at the ESRI and the Central Bank).

Re Michael Hennigan’s figures:

Another way of putting them is that in 2007 Ireland received almost 4 times as many greenfield FDI projects per capita as Poland. But, pigs would fly before the figures were ever presented in that form on Finfacts.

Whatever about Science Foundation Ireland, the UCD-Trinity Innovation Alliance aims to “establish 300 new high value companies of scale over 10 years”. That’s the sort of thing we need, if they can deliver.

“Re Michael Hennigan’s figures:

Another way of putting them is that in 2007 Ireland received almost 4 times as many greenfield FDI projects per capita as Poland. But, pigs would fly before the figures were ever presented in that form on Finfacts.”

Nor should they be presented the way you say. What is important is the trend. Ireland decreasing from a position of attracting lots of FDI to lots less and worryingly vary little new company investment and Poland going from a former soviet state to doubling its number of FDI projects over a 4 year period. Fin facts is one of the few sources that does not suger coat economic data. Maybe the reason you find it distasteful is because you are not used to it.

@Finfacts @John @Eamonn

The other thing to be aware of is, a bit like sausages, the UNCTAD data are only as good as how they are made and the more you look into them, the less you feel like consuming them again!

Working in this area, I can say that there is significant possibility that the trend for a lot of countries is due to better reporting to UNCTAD’s (private sector consulting) source, rather than more projects. Also, UNCTAD’s source is emphasises timeliness rather than completeness, in that particular trade-off. Another consideration is expansion (Ireland’s staple now), rather than greenfield. One more to throw into the mix is whether or not the focus is solely fully mobile projects (e.g. a shared services centre versus setting up retail operations in a country).

That’s not to say that for the median country, the UNCTAD statistics aren’t a useful guide, but Ireland is not a median FDI country, and a range of factors mean that the IDA statistics are probably the best ones to go with for our own trends.

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