FDI Investments in Japan and Ireland

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Foreign direct investment (FDI) has made a significant contribution to economic development of different countries. Japan and Ireland’s policy continues to provide a reasonable welcome for new FDI, but it is far from the wide-open door that it once was. Both countries encourage investment, and there is even incentive for competition among the states to attract new ventures from abroad. According to statistical results, in 2003 inward FDI accounted for some 78% of the gross fixed capital formation in Ireland, but only 0.6% in Japan. The different is primarily caused by economic development of both countries since 1980s-1990s and geographical location. Also, it is possible to distinguish different economic policies and attractiveness of both countries for foreign companies.

Economic development of Ireland and Japan are the main factors of FDI difference. In contrast to Japan, Ireland has experienced economic stagnation and poor economic development of the main industries. Unlike most of its near neighbors, Ireland is a newly industrializing country (NIC) bearing marked similarities to the development trajectory of East Asian and Latin American countries (Allen 24). The uniqueness of Ireland was caused by different various phases of Ireland’s development up to the advent of the Celtic Tiger; distinctive features of Irish industrialization such as its dualism and its employment intensity; the distributional impact of economic growth, it examines the extent of poverty and social inequality prior to the Celtic Tiger phase (Allen 24).

Irish economic development has followed a path very different to that of the main capitalist economies – either large or small – geographically contiguous to Ireland, the experiences of which tend to inform mainstream economic theories. The only exception was the north-east of the island which became an industrial growth pole within the British economy. For Irish industrialization has been extremely reliant on foreign direct investment with the result that foreign-owned industry controlled 77 per cent of net manufacturing output in 1995 with 52 per cent of that coming from the high-tech sector which employed only 29 406 workers out of a manufacturing labour force of 220 578 workers (Allen 34).

Up until the early 1990s, Ireland’s dual-type industrial structure was seen to have resulted in a capital-intensive form of industrialization in which high productivity growth in its most dynamic industries failed to translate into high levels of employment growth (Allen 72). The conclusion that dependence on FDI can have the effect of fostering a more capital-intensive rather than labor-intensive form of industrialization was seen as consistent with the findings of the international development literature and was supported by evidence produced by Frank Barry and Hannan showing Ireland to have a ‘revealed comparative disadvantage in labour-intensive goods’ (1995, 1–3; emphasis added). This was to change dramatically in the second half of the 1990s (Bradfield 321).

Critics (Allen 82) admit that unlike Japan, Ireland’s development trajectory in the twentieth century is closer to that of a group of East Asian and Latin American newly industrialized countries (NICs) than it is to Ireland’s nearest neighbors. For this reason, Ireland’s industrialization is here compared to that of a group of NICs. The East Asian NICs chosen are Hong Kong, Singapore, South Korea and Taiwan as these are regarded as the original four ‘tiger’ economies. Underlining the strength of the Irish economic performance is the high growth in export volumes throughout the second half of the 1990s (Craig 44). This shows Irish export growth to be well above that of the EU and the OECD and comparable to that of other strong export-oriented NICs such as Mexico and South Korea. Strong international demand and a weak euro helped ensure that Ireland’s exports to the United States grew by 37 per cent in the 11 months. This indicates Ireland’s growing dependence on the US, both as a source of foreign investment and as an export market, a situation described by the Economist Intelligence Unit as Ireland’s ‘deepening integration into the US economy’ (Craig 99).

Subsequently FDI was attracted to the mining industries, and multinational firms played a predominant role in developing Ireland’s huge mining industry. FDI inflow amounted to about $300 to $500 million per year or between 15 percent and 20 percent of all domestic investment. From the late 1990s FDI rose from about $500 million to $1.6 billion, but the share of domestic investment provided by FDI dropped from a range of about 16 to 18 percent to a range of about 10 percent (Craig 72). However, several factors induced firms to shift toward debt financing for large-scale mining ventures, and much of this financing also came from abroad. The result of this investment is that about 40 percent of the total equity of Ireland manufacturing and 50 percent of the mining industry is foreign owned, and possibly 60 percent of mining is under foreign control. Ireland firms more recently have been making their own direct investments in other countries; this direct investment grew from about $100 million in the early 1970s to between $200 and $300 million by the end of the decade (Allen 76). Thus the outflow of FDI amounted to about 20 percent of the inflow of FDI during the 1970s and to about 2.5 percent of total domestic investment. High levels of foreign ownership of both manufacturing and mining have raised sensitive economic and political issues as they have in Canada and other countries (Fitz 30).

In contrast to Ireland, for more than fifty years Japan’s contacts with the outside world have been dominated by relations with the United States, and since the 1950s the two nations have been linked by a Treaty of Mutual Security as well as by important two-way trade. For their part, American policy-makers have come under sustained attack at home for permitting the use of US resources for the protection of Japan and thus have renewed calls for greater international burden-sharing to be undertaken by the Japanese (Argy and Stein 33). Evidence suggests that multinational firms are more dominant in industries with high concentration ratios and with significant product diversification, but causation cannot be inferred. These studies point more toward excessive levels of government assistance to industry and to protection from imports than to improper behavior of foreign firms. Protection is distorting and if foreign owners are beneficiaries at the expense of domestic consumers, legitimate concerns can be raised (Argy and Stein 39).

Japan is less attractive for global corporations because of price instability and exchange rates (Hara and Razafimahefa 3). During 1990s, in the light of changing relations with the United States and amid new global concerns, the Japanese government has turned more attention towards its Asian neighbors, in particular by participating in a number of regional forums (Beasley 11). Thus, many of them are weak enough to invest in japans and open new global companies in this country. In this way, Japan is able to play a more significant regional role without raising the spectre of renewed Japanese militarism on the Asian continent. In addition, participation in international forums is increasingly important for Tokyo and includes most notably Japan’s deepening role within the United Nations. The economy in a relative sense would become more inefficient than it is today. Japan would become more of a rent-seeking society, with individuals and groups increasingly relying on the government, and the political process would be absorbed in determining relative shares. Furthermore, Japanese society would become more of a hostage to powerful domestic vested interests such as labor unions or monopolistic business firms whose political clout could not be overcome. In the realm of foreign policy (Beasley 28).

In contrast to Ireland, Japan is one of the courtiers which invest heavily in Europe and America. The EU holds 30 per cent of total world stocks of Foreign Direct Investment (FDI) and is a major recipient of Japanese FDI. Japanese FDI to the EC in the financial year (FY) 1990 was approximately US$13.3 billion (compared to US$2 billion in FY1985) (Beasley 82). In contrast, EC FDI to Japan in the same year was just US$1.2 billion. What is more, Europeans are concerned about the sectoral and individual country focus of Japanese FDI in Europe (of which approximately 50 per cent was destined for the UK alone in 1996).

Most investment continues to be in high technology or engineering-based industries, and Japan has tried on several occasions to address this problem (Beasley 88). One of the ways in which the Japanese have aimed to reduce European hostility in some areas has been to increase their local-level involvement within the areas of Europe in which they invest. Nevertheless, the dialogue over market access problems has intensified since the Japan-EU bilateral summit of July 1993, and in this area the EU openly contrasts its approach to this problem with the more ‘confrontational’ US approach (which imposes trade sanctions such as the unilateral 301/super 301 provisions and makes demands for sectoral increases). EU negotiators have favored a method of identifying obstacles and reiterating complaints over important issues (for example, the acceptance of European certification for textiles). Thus, many European and Asian countries do not invest in Japan because it requires large financial costs and spending they do not possess (Kim 47).

Geographical and cultural dimensions are also important for FDI destinations. Japan is geographically isolated countries in contrast to Ireland which is more attractive for European countries and the USA. Cultural differences and norms prevent many countries to invest heavily in Japan. In this case, Ireland is more attractive for European states allowing companies to save costs on cultural training and transportation (Beasley 83) Also, European organizations offer Japan the opportunity to participate in assisting developing economies in cooperation with their international partners. While there is clearly a long-term interest in future trade and investments possibilities in the developing periphery of Europe, and while it is in Japan’s interest to ensure a harmonized, open market system and sustainable development, participation in these forums also has a political aspect. For, in providing financial and technical assistance, and in contributing to the framework for future regional and global development, Japan simultaneously shows itself to be a partner for Europe and a global power without being required to play a military role. This reinforcement of civilian power credentials is an important feature of Japan’s participation in multilateral forums in the 1990s. Moreover, the nature of debate within regional forums has been important in helping to redefine the parameters of what constitutes ‘security’ in the post-Cold War world (Beasley 76).

Globalization and European integration open new opportunities for MNEs and TNCs to enter Ireland. Ireland is a member of EU since 1999, so it creates enormous opportunities for free trade and investment (Darby 34). As Ireland has become more integrated with the European Union in macroeconomic terms, the microeconomic structure of her industrial economy has evolved to more closely resemble a region of the United States. The country’s dependence on the United States, especially in sectors that are notoriously volatile like electronics, means that Ireland is highly exposed to the risk of a significant diminution in recent US economic exuberance (Beasley 23; Darby 22). As far as the EU is concerned, and despite being excluded from APEC, the forum’s open regionalism is welcomed as a way of promoting MFN status to non-members, and cooperation with the Asia Pacific region is included in its strategies for the Asian region. In the Hague Declaration, too, involvement in this region was emphasized for the promotion of ‘peace, stability and prosperity. European changes in attitude towards Asia and Japan derived largely from the phenomenal economic growth witnessed in the Asian region since the 1980s and from attention to the potential advantages and threats that such growth would present Europe (Darby 92).

In contrast to Ireland, Japanese economy is not open to FDI inflows. From a Japanese point of view, the development of additional relations with Europe at a region-to-region level offers a counterbalance to the role played by the US in the region (Kim 47). What is more, in terms of balancing the growing potential of other regional actors ASEM was seen as a vital actor in helping to engage y for the first time fully into the international community, and in giving Asians access to the puzzling new environment of east and central Europe ()Darby 78. Although Japanese enthusiasm for the meeting was not overwhelming at first, Tokyo found in ASEM a means of further developing Japan’s regional relations without creating tension among its neighbours.

Japanese participation in the pre-ASEM Asian-side meeting prompted US criticism that Malaysian Prime Minister Mahathir’s plans for an East Asian Economic Caucus (EAEC) were being realized and that Japan was adopting a uniquely Asian stance in the whole meeting (Argy and Stein 55). Outward-oriented policies, on the other hand, would require facing up to adjustment problems rather than avoiding them. As a result, efficiency would be promoted, but the adjustment costs could be quite substantial and might well fall unevenly on different social groups and geographic regions. Not so long ago it was estimated that as much as 60 percent of the labor force in Ireland’s manufacturing worked for firms that depended on protective tariffs for their survival (Murphy 24).

In contrast to Ireland, Japan needs no guidance on how to become more inward-looking; however, if the choice is an outward orientation, the question is when and how fast to attempt adjustment. Welfare considerations often come down on the side of gradualism. This permits more orderly adjustment by individuals, which minimizes adjustment costs, and may even avoid unnecessary adjustments if basic factors in the environment should change (Argy and Stein 82). However, in the Japanese circumstances, a strong argument for sudden change can be made. On efficiency grounds, it is better to reach a new equilibrium point quickly even with adjustment costs than never to reach it at all. With a three-year electoral cycle it is too easy to get policy reversals because the pain of adjustment often comes before the policy payoff. This raises doubt as to whether the objective will ever be reached and may even slow adjustment behavior. Possibly an optimum solution would be to have a two- to three-year lead time before liberalization is implemented but then to institute it completely in one step (Beasley 99).

State policies and reforms have a great impact in FDI inflows in both countries determining success factors and the degree of liberalization As necessary as were the state’s actions in creating some of the conditions for success, it is unlikely that they would have been quite so successful without the coincidence of a number of crucial links factors (Beasley 65). Two of them relate to Ireland’s geographical location and historical connections in that the creation of a single market within the EU, following the passage of the Single European Act in 1987, added to Ireland’s attraction for US investment since locating in Ireland now gave access to the whole EU market. That this coincided with the beginning of a long boom period in the US economy, was a major piece of good luck which Ireland helped turn to its advantage. Yet another linking factor further reinforcing these trends was the beginning of the Northern Ireland Peace Process and the very active support lent to this by the Clinton presidency. Thus Ireland featured prominently on the political agenda of the White House during a period in which the conditions were ideal for a major expansion of US investment. A final boost to Ireland’s export performance was given by the decline of the euro relative to the US dollar and sterling following its creation at the beginning of 1999 (Fitzgerald 152).

In sum, Ireland has long been concerned about the efficiency of its manufacturing sector because of the small operating scales that manufacturers can attain in the country’s small and isolated markets. The national market is limited to a population of 15 million, and even that is fragmented among the distant capital cities that dot the edges of this thinly populated continent; and a great distance separates Ireland from traditional exporters of manufactures and from potential customers for its exports. These conditions probably provide enough natural protection to support a diversified, small-scale manufacturing industry. The small scale and diverse composition of Ireland’s manufacturing industry are to a significant degree the result of natural forces.

The prospect of booming exports of natural resources underlines the importance of these long-term constraints on productivity. Japan is geographically isolated countries which high level of technological development and growth rates. Even though Japan can draw freely on international capital markets to finance massive investments in the production of natural resources, this sector competes with the manufacturing and rural sectors for the services of the Japanese labor force. It also competes for labor with the large services sector, but that sector is, for the most part, sheltered from international competition and hence is likely to expand in response to the increased demand associated with the nation’s growing income. Although the nation as a whole enjoys improved terms of trade, these increase the force of international competition in some parts of the manufacturing sector and frustrate hopes for expansion into export markets in others.

Works Cited

Allen, K. The Celtic Tiger: the Myth of Social Partnership in Ireland, Manchester: Manchester University Press, 2000.

Argy, V., Stein, L. The Japanese Economy New York: New York University Press, 1997.

Beasley, W. G., The Rise of Modern Japan. Tokyo: Charles E. Tuttle, 2005.

Bradfield, M. Foreign Investment and Growth vs. Development: A Comparative Study of Ireland and Wales Canadian Journal of Regional Science, 29 (2006); 321.

Craig, S. Progress through Partnership, Dublin: Combat Poverty Agency, 1994.

Darby, J. (ed.), Japan and the European Periphery. London: Macmillan, 2004.

Hara, M., Razafimahefa, I.F. The determinants of Foreign Direct Investments into Japan. Discussion Paper. Cobe University May. 2003.

Fitz G. John. The Story of Ireland’s Failure – and Belated Success, in Brian Nolan, Philip J. O’Connell and Christopher T. Whelan (eds) Bust to Boom? The Irish Experience of Growth and Inequality, Dublin: IPA, 2000, pp. 27–57.

Fitzgerald, E. Redistribution through Ireland’s Welfare and Tax Systems, in Sara Cantillon et al. (eds) Rich and Poor: Perspectives on Tackling Inequality in Ireland, Oak Tree Press in association with the Combat Poverty Agency, 2001, pp. 151–96.

Kim, Z.K., The Allocation and Motivation of Japanese and U.S. Foreign Direct Investment in an Economically Integrated Area: The Case of the European Union. SAM Advanced Management Journal, 69 (2004): 47.

Murphy, A.E. The Celtic Tiger. An analysis of Ireland’s Economic Growth Performance. EUI Working Papers. 2000.

Click Here To Order Now!

FDI Investments in Japan and Ireland

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)