Individual case study analysis(Ireland's Tiger Economy) - Essay Example

A stiff prohibition on foreign ownership of firms and high tariff barriers from the 1930s to the late 1950s hindered Ireland’s economic growth (Barry,1995). By the 1950s, it was evident that policies, which aimed at giving local investors the priority was not beneficial at all (Barry,1995). This was because infant industries had not matured and were not sufficiently competitive to generate sizable exports. As a result, Irish policy makers changed tact. The “control of manufacturers’ act”, which gave local investors priority, was abolished.

Policy makers engineered the development of the foreign direct investment. The first step was to introduce zero corporate profits tax on manufactured exports. Secondly, policy makers initiated attractive investment grants to foreign investors. Thirdly, policy makers abolished tariff barriers. The Irish economy in the past three decades is strongly linked to FDI. The investment platform has significantly changed. Currently, foreigners who own export-oriented firms, additionally, own almost sixty percent of gross output and forty-five percent of employment in manufacturing. U.S.

investors are the majority of foreign investors operating firms in Ireland followed by UK and Germany (Barrell, 1996). Amazingly, a majority of foreign manufacturing firms in Ireland imports their raw and semi processed materials. This is because FDI has abolished barriers, which hinder investment making the cost of investment extremely affordable. Current data indicates that companies, which are owned by the locals, export only 35 percent of output (Barry, 1996). On the other hand, foreign owned manufacturing companies exports a whopping 86 percent of the output (Barry, 1996).

This indicates that Ireland’s economy cannot strive without the investment from foreign firms. The success of Ireland’s economy is also because of a solid political economy. Furthermore, the political, economic and legal systems of any given country take a huge role in determining the economic well being of that particular country. Ireland’s political economy and legal systems offer a perfect environment to foreign investors. Although, seen as the most successful economy in Europe and the world at large, Ireland’s economy was greatly affected by the global financial crisis.

Between 2002 and 2007, the economic prowess that Ireland enjoyed changed in fundamental ways. At that moment, the economy continued to grow steadily owing to the rapid expansion of credit cards and an increase in personal indebtedness by the Irish natives. Rising property prices were seen as one of the igniters of this situation. Between 2002 and 2007, construction activities grew rapidly, accounting for the economic boost and rise in employment (ESRI, 1997). Amazingly, the rampant growth in the construction industry was supported by huge bank lending.

At that moment, the balance sheets of many Irish banks expanded relative to the size of the economy. Reports indicate that a majority of the banks relied, on their deposit base, to fund loans. Unfortunately, greater financial integration, which was initiated partly by the introduction of the euro, forced local banks to source funds from abroad. In addition, the same period realized an increate appetite in financial markets, which caught Irish banks with surprise. A concentration in risky lending practices and lending in property