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Topic:

Increase of Investment and Economic Growth in Ireland

Essay Instructions:

The research tasks on a chosen country can be a shared activity so it is possible to do the research in pairs or, at most, groups of three.

HOWEVER the contents of the report and any analysis of the research must be your own AND MUST NOT BE SHARED.  SHARING THE CONTENT OF YOUR REPORT IS PLAGIARISM AND ALL STUDENTS INVOLVED WILL RECEIVE ZERO MARKS FOR PLAGIARISED CONTENT.

Students should not investigate countries where the majority of GDP is generated by state owned enterprises (SOE) or where the economy is dominated by the economic activity of the state (state capitalism).  This includes countries such as China, UAE, Russia, Indonesia, Malaysia, India, Brazil, Norway, Thailand, Singapore, Turkey and Saudi Arabia.

Tasks

-          Review the definition and explanation of investment in
Gillespie (2016) Chapter 21, pp426-429
Sloman and Garratt (2016), pp208, 212, 215

-          Identify the country to be investigated.  A good start is to review the country profile using the CIA World Factbook.
https://www.cia.gov/the-world-factbook/countries/

-          1. Research the statistics on investment by firms in the economy, with regard to
 - levels of investment since 2000.  Has it risen and why?  Has it fallen and why?
   Are changes in investment levels linked to changes in growth, unemployment and/or trade? Comments should be supported with data.
 - patterns of investment e.g., where the investment is occurring
 - investment by sector – e.g., mining, oil production, manufacturing or telecommunications
 - investment by domestic firms
 - foreign direct investment

2. From the analysis of investment in the country, factors negatively affecting investment should emerge.  Three factors should be investigated.
 - Explain how each factor is negatively affecting investment  E.g. corruption or poor education with data support e.g. primary, secondary or tertiary sector growth
 - What policies is the country pursuing to solve these problems – monetary, fiscal or supply-side policy examples.

Essay Sample Content Preview:

THE EXTENT TO WHICH AN INCREASE IN INVESTMENT IS THE MAIN DRIVER OF ECONOMIC GROWTH IN IRELAND
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The Extent to Which an Increase in Investment is the Main Driver of Economic Growth in Ireland
In a 1994 investment report for Morgan Stanley on Ireland’s economy, Gardiner described Ireland as the Celtic Tiger because of the country’s surge in economic growth between 1987 and 2007. Between 1995 and 2000, the country’s annual growth rate averaged 9.4%, and between 1987 and 2007, the GDP grew by an astonishing 229% and thus, earning the name Celtic Tiger (Donovan & Murphy, 2013). Today, the Celtic Tiger still lives on with a growth of 15.2% in 2021 (OECD, 2022). Based on this phenomenal growth, there is a need to understand the role of investment. “Investment is the buying of a financial asset with the prospect that the asset will result in income in the future” (Gillespie, 2019). In ideal conditions, investment is supposed to influence the economic growth of a nation. According to Peterson (2017), economic growth "…is the increase in quantities of services and goods per head of the population within a given timeframe, measured in GDP. Based on these terms, the current paper focuses on investment to determine whether it is the primary driver of economic growth in the Republic of Ireland.
The Keynesian Theory of Investment
Depending on economic opportunities, personal investor interests, or emerging business niches, investors can choose different investment forms, including R&D, traditional investment in physical capital, and improvements in process and productivity. In Ireland, sectors experiencing consistent growth include life sciences, information & communications technology, consumer & industrial products, and financial services. For instance, in the information and technology sector, reports show that the tech funding in 2021 reached a record high of €1.6 billion, with over 292 organizations raising investment (IBEC, 2021). The pandemic did not deter investment in this sector, with over 12 companies raising at least €30 million each in 2021 compared to 2019, when only three organizations raised the same amount or more (Paiva, 2022). The sector's growth that attracted these funds illustrates the sector's importance to the economy and the investment of efforts of organizations and individuals.
In the Technology & Communication industry, funds went to different investment firms. According to KPMG (2022), Research and Development, for instance, received over 25% of the share, an increase of 32% since 2019 before the pandemic. Areas like improvement of processes & productivity, especially in the financial sector, also experienced a surge in investments, mainly through regtech. Regtech is the management or regulatory processes in the financial sector by leveraging technology (Becker et al., 2020). Figure 1 below shows an increase in regtech investment, only deterred by the pandemic in 2019, followed by a quick positive response from 2020 onwards. Other areas that have received significant investment in education and technological infrastructure. These developments partly explain the surging role of the Technology and Communication industry on Ireland's actual and potential economic growth.

Figure  SEQ Figure \* ARABIC 1: Investment in Regtech, Ireland (KPMG, 2022)
Actual economic growth is measured by the annual percentage change in a nation's Gross Domestic Product (GDP). GDP is the standard measure of value-added generated through the production of services and goods in a country within a fixed period. In Ireland, the IT and Communications sector accounts for 13% of the GDP. Therefore, changes in this sector due to investment are bound to impact the nation’s GDP, with investment significantly impacting aggregate demand. Investment in the sector in the early 2010s resulted in a projected annual growth rate of 7.2% in ICT products and services demand between 2014 and 2018 (ICS, 2019). This is because investments spurred developments in new and emerging products & services in cognitive systems, AI, IoT, cloud computing, data analytics, and 3D printing. According to KPMGa (2021), this demand surged even higher after the pandemic as employees sought opportunities to work remotely while online activities surged. These changes in the sector highlight the role of investment in increasing aggregate demand for products and services and, therefore, actual economic growth.
On the other hand, potential economic growth is measured by the projected annual change in a nation's national output potential level. Potential growth is driven by improvements in long-run aggregate supply (LRAS). The LRAS highlights the relationship between the price level and real GDP that would be supplied if all prices and nominal wages were flexible. For instance, the IT and Communication sector investment saw an increase in the production capacity of organizations due to expanded employment opportunities. This aligns with the Keynesian Theory of Investment's assumption that aggregate demand is more likely than aggregate supply to be the primary cause of long-term economic events, such as the current surge in demand for IT and communication products & services. In figure 2 below, the nation's economy will be below total capacity in the long term, influenced by the shortfall in IT skills coupled with sticky downward wages. In essence, Ireland's aggregate demand for IT and communication services and products may reduce even as the potential growth increases. Nevertheless, the shortfall in IT skills will see organizations not employing total capacity, which means that the Irish economy in the IT sector will be below full employment.

Figure  SEQ Figure \* ARABIC 2: Keynesian View of the LRAS
Investment & Economic Growth in Ireland
Investment is the Key Driver of Economic Growth
Activities within the IT and communication industry discussed earlier are just examples of investment contributing to economic growth in Ireland. Figure 3 (appendix) shows that the country's GDP has increased since 2000 despite some shortfalls in specific periods. The decline between 2006 and 2009 marks the recession period in which the collapse of real estate in the US impacted the global economy. In this period, According to Mazeikaite et al. (2019), this period experienced a decline in aspects of the Irish economy and particularly investment, as neither firms nor individuals could raise sufficient investments. The recovery from 2008 saw a surge in GDP, reaching a record high between 2014 and 2016. Mazeikaite et al. (2019) argue that within this period, increased economic activities were fueled particularly by investment in SMEs by local investors and the surge in MNEs.
Notwithstanding the pandemic, investment continued to increase from 2017 to 2021 (see figure 5), contributing to higher growth than the EU (figure 6). The growth experienced in 2021 into 2022 could have also been fueled by investment, as shown by activities in IT. This period increased venture capital, Seed, Angel, and crowdfunding, resulting in the sector's growth (Paiva, 2022). According to AWS (Amazon, 2021), for instance, the company's operations in Ireland generate economic growth of €1.45 billion annually, support 550 local suppliers, and sustain 8,700 jobs. The country's recovery from the pandemic has also benefited extensively from investment as SMEs continue to emerge and form the backbone of the Irish economy. Based on these examples, an increasing investment could be the key driver of economic growth in Ireland.
Other Drivers of Economic Growth
However, looking at figure 4 and figure 5, while there was an increase in investment between 2017 and 2019, the country's GDP still declined in the same period. This outcome suggests that while investment is essential, there may be other factors at play that are more important than investment in the growth of this economy. Scholars (Donovan & Murphy, 2013) and global organizations (OECD, 2016) who have studied the Celtic Tiger economic phenomenon list factors like low corporate tax rates, underlying intellectual property, and literacy rates. These factors either outstrip investment as the main drivers of economic growth, or without them, the investment would not significantly impact the economy if increased.
Low Corporate Tax in Ireland
In Europe, Portugal has the highest statu...
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