Online Event: Reconstructing the Economy of Ukraine

The J.E. Cairnes School of Business and Economics and the Whitaker Institute for Innovation and Societal Change at NUI Galway will host an online event on Reconstructing the Economy of Ukraine at 6.00 p.m. (Irish time) on April 26. The event is free but registration is required. To register for the event, please go to:

Webinar Registration – Zoom

The main speaker is Professor Tymofiy Mylovanov. Professor Mylovanov is the President of Kyiv School of Economics (KSE) and Associate Professor of Economics at the University of Pittsburgh. He served as Minister of Economic Development, Trade, and Agriculture in Ukraine from 2019 to 2020.

Also speaking will be Professor Barry Eichengreen. Professor Eichengreen is the George C. Pardee & Helen N. Pardee Chair and Distinguished Professor of Economics and Political Science at the University of California, Berkeley. He is a fellow of the American Academy of Arts and Sciences. He has served as a Senior Policy Advisor to the International Monetary Fund.

The event will be chaired by Dr. Edel Doherty, Lecturer in Economics at NUI Galway.

Fiscal Council Webinar on Long-Run Public Finance Data

The Irish Fiscal Advisory Council is launching some new research and a new database of the Irish public finances since the foundation of the State.

It is organising a webinar exploring some of the key tax and spending trends over the past century with Professor Patrick Honohan as a discussant.

The webinar takes place on Thursday 21st April at 10am and you can register by signing up at:

https://us06web.zoom.us/webinar/register/WN_Qga6g2ctRC-v2bgtqEe_uQ

After registering, you will receive a confirmation email containing information about joining the webinar.

CSO Seminar: Government Finance Statistics

The CSO will host an online Government Financial Statistics seminar on Wednesday 27th April 2022 from14.00-16.00 and registration is available at the following link:

Government Finance Statistics Seminar – CSO – Central Statistics Office

The seminar will look at the Classifications, Compilation and Outputs of the Government Accounts in CSO using quarterly government finance statistics (GFS) and annual excessive deficit procedure (EDP) data. It will expand on what the statistics tell us about the significance of the government sector in Ireland. The use of GFS and EDP data at the European Commission will be explored by speakers from DG ECFIN (European Commission Directorate‑General for Economic and Financial Affairs).

Through CSO presentations and user perspectives, this online seminar will help users to make the most of the wealth of detail in the accounts.

Speakers:
Jennifer Banim, Assistant Director General – Economic Statistics, Central Statistics Office
Stephen McDonagh, Central Statistics Office
Norita Murphy, Central Statistics Office
Tom Fitzgerald, Central Statistics Office
Derek Stynes, Central Statistics Office
Ingrid Toming, DG ECFIN
Antonino Barbera Mazzola, DG ECFIN

IEA Conference: Submission Deadline – 11 February

A reminder that the deadline for submitting your paper to the 35th Annual Irish Economic Association Conference is the end of this week.

The deadline for submissions is Friday 11th of February 2022 and submissions can be made through this site.

The 35th Annual Irish Economic Association Conference will be hosted by the University of Limerick in the Castletroy Park Hotel on Thursday 5th May and Friday 6th May 2022. 

Please note that the conference will be held in person and will not be a hybrid or online conference.

A Consolidated-by-Nationality Approach to Irish Foreign Exposure

Andre Sanchez Pacheco (Trinity College Dublin)

How exposed is Ireland to foreign shocks? Relying on residence-based measures of foreign holdings to answer this question can be challenging. These statistics are obscured by the vast presence of Special Purpose Entities (SPEs) in the country. In residence-based statistics, foreign assets and liabilities are sorted according to the residence of the immediate counterparts. Consequently, the cross-border positions held by these Irish-resident financial intermediaries appear in Ireland’s external balance sheet. However, these entities frequently have no economic ties to Irish agents. Lane (2019) notes that the large size of these holdings imply that the positions of Irish agents are not visible in the headline data. Such opaqueness poses an obstacle for policymakers when assessing the exposure of the Irish economy to foreign shocks.

Consider a foreign-owned SPE resident in Ireland whose sole purpose is to raise capital from international investors and transfer these resources to the company’s headquarters located abroad. Suppose this Irish-resident company sells one billion Euros in bonds and lends one billion Euros to its parent company. Under the residence-based approach, the bonds issued by this entity and purchased by international investors will be recorded as Irish foreign liabilities. Similarly, the loans sent to its home country will be booked as Irish foreign assets. As a result, the presence of this SPE in Ireland will increase the sum of Irish external assets and liabilities by two billion Euros. However, the activities conducted by this company have virtually no relation to Irish agents. In line with this example, Galstyan et al. (2021) provide evidence of cross-country financing happening through Irish-resident SPEs.

Alternatively, one could rely on consolidated-by-nationality statistics to provide a more accurate description of Irish foreign exposure. Its key principle is to sort foreign assets and liabilities according to the nationality of the ultimate counterparts. In this example, such approach would imply leaving the holdings of the SPE out of Ireland’s consolidated foreign balance sheet as these holdings do not have Irish agents as their ultimate counterparts. By not incorporating such holdings, the consolidated-by-nationality balance sheet would provide a more accurate description of the foreign exposure related to Irish agents.

In Sanchez Pacheco (2021), I construct the Irish consolidated-by-nationality foreign balance sheet for the period between 2011 and 2019. The balance sheet is constructed using a novel methodology that builds on firm-level data.

Figure 1 shows the size of Ireland’s balance sheet measured by the sum of its foreign assets and liabilities using both methodologies. The key stylized fact that emerges from this analysis is that Ireland’s consolidated-by-nationality foreign balance sheet is on average 46.7% smaller when compared to its residence-based analogue. Devereux and Yu (2020) show that international financial integration increases the degree of cross-country contagion. Therefore, I interpret this finding as indicating that Ireland is less exposed to foreign shocks than what is captured by residence-based statistics.

Figure 1: Sum of Ireland’s foreign assets and liabilities

Note: This figure shows the evolution of the sum of Irish foreign assets and liabilities. The blue line shows such sum when calculated using the consolidated-by-nationality approach in Sanchez Pacheco (2021). The black line comes from Lane and Milesi-Ferretti’s External Wealth of Nations database and shows the sum when calculated using a residence-based approach.

The role of multinationals

Ireland’s consolidated foreign balance sheet expanded over the past ten years. What were the key drivers behind such expansion? Figure 2 shows the evolution of Irish consolidated foreign liabilities according to different categories. It shows that affiliates of foreign non-financial multinational enterprises (MNEs) were the key contributors to such expansion.

In general, foreign non-bank MNEs represent the main source of Irish international financial integration. In 2019, their activities are associated with EUR 923.2 billion in Irish foreign assets and EUR 2,172.1 billion in foreign liabilities.

Figure 2: Ireland’s consolidated foreign liabilities

Note: This figure shows the evolution of Irish consolidated-by-nationality foreign liabilities related to each category. Foreign companies that have changed their domicile to Ireland are excluded from the sample.

The outsized presence of U.S. MNEs in Ireland

Of that amount, U.S. MNEs are the most relevant ones as their activities account for over half of the Irish foreign liabilities related to foreign non-banks. Figure 3 shows Ireland’s consolidated foreign holdings related to the activities of foreign non-banks MNEs according to the nationality of their ultimate owners. U.S. firms are followed by German and U.K. firms in distant second and third places.

This result suggests that Ireland is particularly exposed to shocks in the U.S. that affect the global decision-making of these MNEs.

Figure 3: Ireland’s consolidated foreign assets and liabilities related to foreign non-banks MNEs

Note: This figure shows Irish consolidated foreign assets and liabilities related to foreign non-banks operating in Ireland for 2019. Foreign holdings are sorted according to the ultimate counterpart countries that own these companies operating in Ireland. These holdings are estimated using data from Bureau van Dijk’s FAME data-set.

Conclusion

Residence-based measures of Irish foreign holdings are obscured by the vast presence of financial intermediaries in the country. Alternatively, I construct an estimate of the Irish consolidated-by-nationality foreign balance sheet for the period between 2011 and 2019. I find that Ireland’s consolidated-by-nationality foreign balance sheet is on average 46.7% smaller than its residence-based analogue over the sample period. This result indicates that Ireland is significantly less exposed to foreign shocks than what is typically suggested by residence-based statistics.

This paper is part of the Consolidated Foreign Wealth of Nations project that seeks to create publicly available estimates of consolidated-by-nationality foreign assets and liabilities for multiple countries. This dataset will complement the seminal External Wealth of Nations work by Lane and Milesi-Ferretti which provides estimates of residence-based external holdings for all countries.

Contact email: sanchean@tcd.ie. The author would like to thank the Irish Research Council for the financial support provided.