Explanation: first, multinational corporations produce outputs (things). However, not all the raw materials or inputs are sourced in the Irish economy. These inputs would include physical inputs such as copper (good conductor) for wires and electronics and intangible inputs such as if I’m building a product and I have to use a certain software package, I have to pay royalties to the producers. ! The second issue (transfer pricing) involves putting business conducted elsewhere though the accounts of the Irish branch; so that, the parent company will only pay the Irish rate of corporation tax (12. ). Multinationals route the profits made elsewhere to Ireland because it’s cheaper: its sharp but it is perfectly legal. They can do it because if I have a German plant and I’m producing glasses and there is a Slovenian customer, tell him to pay to an address in Ireland. This has nothing to do on what produce. The difficulty with this is that it over-exaggerate the real level of economic activity. It gives us a false figure.! The last issue (repatriation of profit) involves many multinationals that do not reinvest their profits back into the country instead they send them back to head offices.
The money that they make distorts GAP and GNP figures. This leaves Ireland in the unique situation that “our” GNP is less than “our” GAP- In other country of the world, it is usually the opposite.! Irish GNP is considerably lower than GAP ! The difference has been largely explained in the levels of profits’ repatriation. In effect, the activities of multinationals in the Irish economy distort our national account. ! Dangers associated with over reliance on FED! Indigenous industries may get “crowded cut”! Indigenous industries are native Irish industries.
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Multinational firms may be ore greedy for resources such as land and labor and may make them expensive thus making difficult for indigenous firms to compete for labor and land resources.! I take any city or town. I am an indigenous firms and there are four other multinationals. They pay really well, so if I want the best, I have to raise the wage.! -n Here only for tax incentives! Are the multinationals here only for low corporation tax? Yes. This is not only the main reason because otherwise they would go to Romania.
The reason is simple because it doses ‘t have other advantaged facts. We can truly say that t is one of the reasons but not the only one then. What happens if the corporation rate change or if the European Union decide that every countries has to have the same corporation rates? The corporation rate is what we call a “nice to have”.! FED is also called “international mobile investment’ for a good reason! ! Essentially there are many other countries pitching for (asking for, making a presentation for) multinational businesses.
A big big competitor for software development is India because there are lots of engineers and they know English too. ! Economic “casualties” may occur when there is a large scale withdrawal room host country! ! Every multinational job created support two and half jobs in an indigenous industry. ! Issues in Irish industrial policy . 1 . Dependency on the multinational sectors Over-dependency (too much emphasis) on multinationals may not give indigenous firms a chance. If a big multinational come to Ireland, it has a big support.
If a small business company, it is given a little support, when it is used to be more. ! 2. Clustering ‘V” Dispersions Clustering means that it is putting industries into big cities and large towns, encouraging certain industries in certain regions (bring together). Currently, since maybe sass, there is pretty much clustering policy in Ireland: Dublin, Cork, Sling, Athlete Mulligan. They are trying to concentrate certain industries in certain region; in the East: semi conductors, IT, cloud computing and big data, in South pharmaceutical and in the Middle and West medical applications and devices. 0 years ago was completely different because every town has its own industry. The dawn side is that if you are a small town, your population is traveling to big towns. The positive thing is that the communication is efficient. Clustering means that every part of Ireland has an opportunity to develop. Dispersion means promote the industries development to the four corners of Ireland.! 3. Are we “mature” enough as an economy to develop our own sustainable indigenous sector? C] The answer is probably not. For the simple reason that there always will be roles for external investments in the economy.
However a developed indigenous sector would lessen our dependency on multinationals, we must remember that for every Euro spent on attracting multinational, the job impact is much greater. If we look at economies such as Germany and Italy, they have a very strong indigenous sector. 4. The work of the agencies: Enterprise Ireland, IDA Ireland, Draws an Chelating (for Gaelic only speaking communities)CLC Enterprise Ireland: its job is to … C] IDA Ireland: its job is to attract multinational investments in Ireland. Draws an Chelating: its job is to promote multinational investment into Gaelic speaking region in Ireland. If you are an American company, why should I want to invest there? The answer is extra incentives. C] Search on Youth: draws an Chelating, video called “Enterprise Development – Draws an Chelating” and “What is Chelating… ” Where it explains that services are given in Gaelic and so on. Гњ Search on Google: carting Talleyrand in Gaelic speaking region.! 05. 03. 2014! The Indigenous Sectors Mostly SEEM (Small-Medium Enterprise) supported by Enterprise Ireland (with some significant changes in 201 2).
D The Indigenous Sector is Ireland’s native own industry, the component of indigenous industry that receives the most support from government is the SEEM sector. Strictly an SEEM is a company with over 20 employees. CLC This support comes mostly from a founding agency called Enterprise Ireland (=IDA for indigenous companies). Its main focus is helping out businesses that they deem a HOPES. WHIPS (High Potential Start Ups) are existing businesses that have export potential.! Of course the HOPES are export potential designation doesn’t include many of the Irish business which include small business and micro enterprises.
CLC Small business = company with less than 20 employees.! Micro enterprises = provide one job for one individual D Both of them get very little help.! Enterprise Ireland gets interest only in SEEM for new money( in term of the amount of resources you have to use = cost of what you give up producing other products. 0 Export can contribute to GAP growth (export led growth)D GAP is made up of C + + G + (X – M), in which C = consumptions = investments G = government expenditures] X = export C M import It makes sense that if we boost export, we also boost GAP.
In simple terms, an increase of our export levels will soon reflect an increase in our GAP levels; many governments worldwide have stimulated the export side of their economy in order to stimulate GAP and economic growth. This has been called a strategy of export led growth particularly when the domestic economy is flat. In simple terms if the domestic economy cannot create a emend for goods and services or it doesn’t dispose of an income to do so, it makes sense for a country to sell its goods abroad into markets in which there is money to buy those goods.
L] The British government at the WWW, embarked (take off) upon the policy of “Export or die”. In Ireland, a lot of economic growth in the last 2/3 years comes from big export.! 3. A nation’s economy may be classified as:C] OPEN: vivid ionizing appointГњ CLOSED: less of GAP TETRARCH: is one in which a government or regime decides that whether possible it should be no trade with the outside world, because the country should be self-sufficient. C] Reasons: 1) ideological: e. G. Unionism countries don’t import and if they do, they import from other communist countries Гњ 2) resources base: to trade, money and goods are needed-D The economic regime may be one of free trade or protectionism. D Free trade: means that you allow imports to come in freely in your country, you do not tax them or restrict them in any way. Al Protectionism: occurs when you want to protect your own native industries from imports penetrations by taxing them and putting restrictions on them or using embargos. D In Ireland there is a little bit of both: free trade from EX. import/export area.
Protectionism from “third countries” (out of EH trade area)! 12. 03. 2014! Search the website: International Trade Statistic 2013! 4 5 How does a nation’s trading status define its economic structure?! A nation’s economy may be classified as relatively:! Open ! Close! Tarry! Examinations and explanations of trends in international trade:! Merchandise trade! Trade in physical goods! 6 -n World merchandise trade valued at 201 3! – $ 2 trillion 1985! Growth in trade has outweighed growth in production in last 50 years or so countries are more interdependent. !
This is being largely facilitated by the breaking down of the various barriers to international trade, mainly facilitated by the work of the WTFO (World Trade Organization) and formally by GATE (General Agreement of Examinations and explanations of trends in international trade: (CONT’D)! Industrialized countries dominated world trade! Account for 85% world trade! Germany is world no. L exporter! Growth in contribution of China, South Korea is notable! Commodity composition Of trade is becoming less important (primary products)! 28% of merchandise trade and failing (nowadays a bit less)!
Balance made up of manufacturers (China)! Fuel and fond are world’s most traded commodities (Do we remember what are the world’s 2 most traded commodities? Oil and Coffee)! Trade in services valued at $3 trillion in 2008 (is financial commodities, not physical)! Growing! Has increased faster than merchandise trade: an economy is deemed to be more developed, the bigger its service industry is. In Ireland the service industry accounts for more than 50% of economy. For Columbia for example is agriculture (merchandise trade). An economy becomes sophisticated when it is mainly made by services industry (export of a service).!
Services account for a large share of employment and income in many industrial countries! Examples: financial services, insurance, real estates, etc.! What is it? Anything except merchandise. Not physical goods. Banking stock brooking! Another branch of insurance is re-insurance: an insurance company that insure an insurance company. They lay off bets. This is a massive industry.! If we do consultancies or training and we do it abroad, it is a services trade.! Portugal is not good because it is quite agricultural.! Then, look at http://WTFO. Org/English/rest_e/stasis_e/tickets_e/ its 3_tock_e. M! Section: world trade developments, key development in 201 2: a snapshot! Search on Youth: international trade, “How International Trade works, 1951”! Many forms of government control over the import:! 1. Import licensing! 2. Special tariffs (taxes) – indirect control! 3. Exchange control! Ways countries limit their import.! Look at the many form of government control over the export too. ! Generally, someone can buy from us if we buy something from them. It is called bilateral trade and takes that both sides of the story cooperate.! Multilateral trade: more than 2 countries are involved.
But sometimes the trade balance is disrupted due to the intervention Of the government. ! Since in the world there is an inequity of:! People ! Industries! Resources,! 7 they make international trade necessary even if there are lots of laws for it and lots of reasons for them.! Another video is “International Trade: The Basics” and “International Trade – Are you ready to be a part of it? “! Examinations and explanations of trends in international trade: (CONT’D)! Increased economic interdependence: there is much more import and export activities! -l Growing importance of trade has made countries more pendent on each other! N Measured by Export GAP/EDP Ratio or Imports GAP rating! 115% EDP in Ireland, while 40% in Germany! 85% ID? In Ireland! Car Cheese Ireland errs errs China errs Theories of international trade (some old some new)! Mercantilism ! Theory of absolute advantage! Theory of comparative advantage! Technology gap theory! Heckler – Olin theory (four theorems) of international trade! Intra industry trade! 19. 03. 2014! Inter and Narrative background: the theories of international trade, both old and new, attempt to explain why it is that international trade exists or takes place.
All theorists are in agreement that international trade is a positive development; where they disagree, however, is why is it a positive development! For example, some schools of thought (I. E. Mercantilism) tell us that international trade is beneficial because it builds up the wealth of the nation. Theories Of Adam Smith. ! Other theories point to the efficiency argument: in other words, they tell us that we engage in international trade for the purpose of efficiency. In simple terms, this means that we import goods that cost less to purchase abroad rather than produce at home.
Depending on the theory, this cost may be purely the financial cost as in absolute advantage or it may be comparative cost or relative cost or opportunity cost.! Absolute cost: cost of a thing made in Ireland or cost of the same thing made in another country (I. E. China).! For the other costs (comparative), we look at the user. ! International trade is explained by differences: there exist differences in technology between countries (technology gap). Countries that produce high tech goods (I. E. Digital watches) will export them to countries that have a lower technological base.
In Ireland there are lots of med devices industries: they send out of the world the products they produce in surplus. ! Inter industry trade means trade between countries in similar products; for example a country might import a good and also export. Germany’s car export: Audio, Propose, BMW. But they import Peugeot, Renault and Citroen too. ! Intra mind gusty trade means that countries might export for example coal and import butter. ! Mercantilism became popular in the XVII and XVIII centuries and the basis of it is that a county will prosper from selling its goods abroad because it earned old.
So if you have sold for example wine, you would get gold instead. The modern version of mercantilism is the idea that a country will 8 earn lots of foreign exchange (currency) if it trades internationally. They create jobs, outputs and opportunities too. ! Does mercantilism work even today? Yes. Speaking of China, by the way, they export more than what they import, so there is not much Chinese money in the world: the modern idea is to sell the more you can overseas and keep the money.! Theory of absolute advantage states that a country will produce and export odds that it can produce cheaply or by using a minimum of resources.
They import goods, instead, that its more expensive to produce home. For example, Irish export cheese and import coconut. You are only concerned with the absolute cost of a product (so euros and cents, no other factors).! How do the advantages come Out? This advantage way come Out as factor Of abundance endowing. Italy, France and Spain produce wine because they have the factor of abundance endowing, which is climate. ! Theory of competitive advantage is over 200 years old, developed in 181 0 by he British economist David Richard. This theory is sometimes called Arcadian trade theory based on Arcadian model.
This has managed to stay current, it is applicable today as it was 200 years ago. It was a number of assumptions: L] 1 . Two good, two countries in the world. He assumed that there were just two goods in the world and two countries in it.! 2. No taxes! 3. No transport costs! 4. Labor costs are equal in both countries! If we believe that we believe everything. These assumptions are very important to make this model world. Simplifications he made! Orchard’s theory works on the following basis: the country that can produce a good using the minimum amount of resources will specialized that good and export it. The country that is no good at producing a certain good and uses up a lot of resources in its production, could not be bothered in producing that good and will import it instead. The theory is best explained with an example.! Richard used England and Portugal, but it is the same. ! The question is: is it efficient for Ireland to produce cars and for China to produce cheese?! The first scenario is no trade. Ireland produces cars and Hess, China cheese and cars. Does it make sense or is it better a trade? What will be more efficient? If it is more efficient to trade, who should produce what?!
Second scenario: trade between the countries. Ireland should produce all the cheese and China should produce all the cars. There is a basis of trade. It is a draft for Ireland to produce cars because for one car, it could have produced 3 cheese (opportunity cost). The same for China: if it produce cheese, for each of it, it lose 4 cars. ! Clearly, it makes a lot of sense for Ireland to concentrate on producing cheese ND for China to concentrate on producing cars because to produce one car, Ireland has an opportunity cost of three tons of cheese and to produce one ton of cheese, China has an opportunity cost of four cars.