1. EF303: Irish Economic Analysis Lecture 7 Empirical analysis of indigenous industry vs FDI

2. Census of Industrial Production (CIP) Some points to clarify… - definition of gross vs net output - data - what is available - waiting on 1990 CIP data from CSO (relevant to project title 1)

3. Empirical analysis… Comparing performance of Irish indigenous industry vs foreign companies based here (FDI) Recall our discussion last week of the relative merits of FDI… What we expect to find in the data… - concentration of FDI in certain sectors? - higher productivity among foreign firms? - import content - exports But be aware of distortions in data… transfer pricing, ‘foreign-owned’ indigenous firms etc.

4. Data from 2005 CIP End of Table 7, page 81. Total employment levels pretty similar between Irish and foreign owned firms… about 110,000 each Biggest foreign employer by far is the US - American firms employ 67,292 here (31% of total industrial employment!) EU firms employ 28,890… of which UK firms account for 10,562, while German firms employ 7,051 Irish firms much smaller on average (3,894 ‘local units’ Irish owned, vs just 600 foreign, with similar total employment figures…)

5. Data from 2005 CIP Total value of indigenous industry: about €7 billion (net output) Foreign owned industry: worth about €57.5 billion Context… Irish GDP was €162 billion in 2005 Irish owned companies paid €3.2 billion in wages and salaries in 2005 Foreign owned companies paid out €4.2 billion

6. Data from 2005 CIP Wages and salaries are significantly better in the ‘foreign’ sector… Average of €39,000 per worker Irish owned: average of €29,000 per worker Biggest difference is in net output/person engaged… ie productivity Irish firms: €63,900/person Foreign firms: €535,600/person (about 8 times more productive!… at least according to these figures…)

7. Looking at specific sectors (Table 6, starts on page 75) Take for example NACE code 15… ‘food products’ What does this include? Look at data in Table 6… Employment, net output, productivity… Comparing Irish with foreign owned…

8. ‘food products’ IndigenousForeign Employment33,4469,793 Net output€2.1 billion€7.9 billion Net output/person€63,300€810,900

9. What does this tell us? This sector accounts for almost a third of indigenous industrial employment Irish firms concentrated in low productivity activities… Compare Gross output figures with net output… Gross output almost identical for Irish and foreign owned firms in ‘food products’ - about €9 billion But Net output figure much higher for foreign firms… what does this tell us??

10. Important sectors Indigenous industrial employment concentrated in ‘food products’ Also publishing and paper (NACE 21-22)… about 13,000 employed in Irish owned firms, and metal fabrication another 12,500 (NACE 27-28) Most productive sector for indigenous industry is NACE 159 - beverages… Only sector where indigenous industry records net output/person of > €100,000 Foreign firms?? As we would have expected… heavily concentrated in hi-tech/high value-added sectors - chemicals and electronics (NACE 24 and 30-33 respectively).

11. Paper/publishing (NACE 21-22) Big indigenous industry in terms of employment (13,000 people) But look at output figures… NACE 22 in particular - ‘publishing, printing and reproduction of recorded media’ foreign owned firms huge productivity… Net output of over €2 million per person engaged!

12. Chemicals (NACE 24) About 20,000 people employed in foreign owned firms (out of total of 24,000 for the whole sector) Over half of these employed by US firms Again astonishing productivity, of US firms in particular… net output of €1.9 million per person engaged Sector is worth €24 billion! (in terms of the value of net output) Wages and salaries total €1.12 billion for the sector

13. Electronics (NACE 30-33) 45,000+ employed by foreign firms Almost 40,000 in US owned companies Productivity much lower… net output of about €300,000 per person engaged for the US firms Total net output of €13 billion in 2005 Wages and salaries worth €1.8 billion

14. Other elements of interest… 1) Import content 2) Exports

15. 1) Import content Irish firms import about 35% of materials purchased For foreign firms the equivalent figure is 86%

16. 2) Exports Indigenous industrial firms export less than half of total gross output (6.2 billion of 13.5 billion) Foreign firms based here export 95% of gross output! (78.9bn of 83.2bn) ‘Export platform’ Destination of exports… Irish-owned companies still dependent on the British market - accounts for 46% of indigenous firms’ exports For foreign firms the dominant market is the rest of the EU (55%), UK market only makes up 15%, while 14% goes to US

17. Q this data raises… Why do foreign companies come here? What keeps them from leaving?? Irish market irrelevant for many/most Don’t source materials/inputs here

18. What affects firms’ location decisions Costs Potential market (in this case Europe NOT Ireland… Ireland as a REGION of EU) Tax rates (particularly corporate tax rates) Availability and quality of labour (education) … how many of these are sustainable for Ireland?? And how many, if any represent ‘unique selling points’ (USPs)?? Which ones are crucial? Depends on type of industry/activity

19. Next time… Look at some more data on foreign vs indigenous industry… Forfas publication “Ahead of the Curve” Over-dependence on FDI?… Policy implications etc.