Ireland’s economic model requires urgent reform if it is to maintain high living standards, according to a new report.
The study, conducted by University of Galway Professor Alan Ahearne, found that while Ireland ranks among the most productive economies globally, this performance is largely driven by foreign multinationals rather than domestic businesses, reports RTE.
The research was funded by Irish entrepreneurs John and Patrick Collison, founders of the global payments firm Stripe, which is valued at more than €135 billion.
Professor Ahearne, a former economist with the US Federal Reserve and adviser to Taoiseach Micheál Martin, said Ireland is heavily dependent on a relatively small number of multinational firms and must foster the development of indigenous high-growth companies, reports RTE.
“The level of productivity at foreign firms is around six times the level of productivity of domestic firms,” he said.
He added that productivity among Irish-owned companies was “unexceptional”, reports RTE.
The report noted that reliance on multinationals is viewed by many commentators as a “structural vulnerability of the Irish economy which public policy should seek to address”.
It also found that foreign-owned firms account for three-quarters of Ireland’s goods exports, reports RTE.
Mr Ahearne’s research highlighted that over the past 50 years, real income per person — adjusted for inflation — has tripled, rising from around €17,500 in 1970 to more than €53,000 in 2023, with growth largely fuelled by US investment.
The report said: “Ireland could, and should, do better at encouraging and supporting high-growth indigenous businesses, reports RTE.
“Ireland should now consider how to use tax policy to attract human capital (talent) from abroad to augment our existing talent base,”, reports RTE.
The study described a global “war for talent”, noting that domestic firms may soon become key drivers of technological advancement.
However, it warned that there are significant doubts about their current ability to take on this role, reports RTE.
The paper said recent geopolitical developments are “radically shifting the global landscape for flows of foreign direct investment” and that Ireland must be better prepared for the impact.
It added that the country needs to do more to attract and retain individuals with “strategic vision” who can mentor and support domestic entrepreneurs, reports RTE.
Prof Ahearne said competition between countries in the “war for talent” is intensifying as nations seek to attract, develop, and retain highly skilled leaders.
John and Patrick Collison said: “This study provides clear evidence that Ireland needs to take decisive action to improve its start-up and scaling ecosystem,”, reports RTE.
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