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Immigration, Social Dialogue and Economic Growth in the Old Periphery of Europe: The Celtic and Latin Tigers?

By Oscar Molina


3. Foreign Direct Investment and the Internationalisation of the Economy

Finally, another common trait of the recent Irish and Spanish experiences of economic growth has been the critical contribution of Foreign Direct Investment (FDI). The 1980s economic recovery in Spain was to a large extent fuelled by substantial FDI inflows, especially during the second half of the decade. The appeal of Spain as a destination for FDI was based on several factors such as relatively good and developing infrastructure, below-average labour costs, good industrial and technological bases and an expanding services sector. The prospect of accession to the EC in 1986, together with a rapidly expanding national market, provided additional incentives to multinational corporations to choose Spain as a location for investment. Even though Spain started to receive FDI in the 1970s, it was not until 1985-6 that the size of this flow became truly remarkable compared to other EC countries. Accordingly, by 1991 FDI accounted for around 5% of Spanish GDP and 17% of total investment.

The importance of FDI for the Spanish economy lies not only in its direct contribution to economic growth, but most importantly, in the knock-on effect of internationalisation. After some decades of relative economic isolation, joining the EC together with the reception of large amounts of FDI meant definitive integration into the international economic scene. Spain was becoming an open economy, as demonstrated by the fact that by the turn of the century it had become a net FDI exporter and the single most important investor in South America together with the United States of America.

There is a general consensus among scholars and policymakers regarding the importance of FDI in explaining the Celtic Tiger. A look at the data serves to confirm this perception as Ireland has attracted the lionís share of US investment in Europe since the early 1990s. By 2006, the FDI stock in Ireland amounted to almost Ä200,000 million. In 2005, inward FDI stock amounted to roughly 125% of Irelandís GDP. According to some commentators, Ireland operates as a conduit for US multinationalsí overseas profits to take advantage of a tax exemption on patent income. Moreover, US multinationals find Irish labour market legislation more attractive compared to other European countries, as there is no obligation on companies to recognise trade unions. This allows US multinationals to be able to adopt similar personnel policies to those followed back at the headquarters. Whatever the motivations behind the investment decision, Ireland has made the most of an attractive fiscal regime in order to attract foreign investors from the US, and also from Europe. This has strongly contributed to economic growth, raising income levels and employment creation.

Concluding Remarks

The Irish and Spanish economies have been the leading runners of the EU in the last fifteen years. Once classified within the poor periphery of Europe, these two countries have undergone what some people would call an economic and employment miracle, or at the very least, a process of accelerated economic convergence. The objective of this short article has not been to provide an interpretation or an explanation for growth in these two economies in the last fifteen years. The complexity of this task goes far beyond what could be accomplished here. The article had a much less ambitious objective, as it simply aimed to highlight the existence of some common traits in these two parallel experiences of economic success: the reception of Foreign Direct Investment, inward migration and social dialogue.

The above analysis, descriptive and impressionistic as it is, serves nonetheless to extract some interesting insights. First of all, the two countries show how international openness has become a necessary condition for economies to grow and develop. Much to the disappointment of the critics of economic globalisation, the Irish and Spanish experiences show that there are benefits to be taken advantage of in order to boost growth. However, and this is the second important message coming from this piece, globalisation has to be managed. In the same way as it is necessary for any economy and society nowadays to become integrated into the international circuits of globalisation, it is equally important to domestically manage its effects. In this regard, the view supported in this article is that tripartite social dialogue, with the participation of all relevant social partners in the management of the economy, has allowed Ireland and Spain to reap the benefits of internationalisation without generating excessive tensions between social and economic groups. 

That said, the risk of a market or neo-liberal bias remains present, requiring the search for innovative solutions within the consensual framework provided by social dialogue. In Ireland, trade unions are becoming increasingly aware of the need to increase labour market regulations in order to guarantee compliance with the terms negotiated in the agreements. The Irish Ferries case showed very clearly the challenges ahead for trade unions and meant a real baptism of fire for partnership. On the other hand, the Spanish economy needs to move beyond a cheap labour model of low wages and labour productivity towards a different competitive strategy. This would ensure higher living standards and better working conditions for migrant workers. In spite of these challenges, both the Irish and Spanish economies have proved capable of internationalising and growing. However, it is important not to forget that part of this success is due to migrant workers leaving their home countries in search of better living and working conditions. As a consequence, it remains an imperative to have recourse to tripartite social dialogue including trade unions, in order to manage the economy and achieve a balance between competitiveness and social protection.

Oscar Molina
University College Dublin


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Copyright © Society for Irish Latin American Studies, 2007

Online published: 29 August 2007
Edited: 07 May 2009

Molina, Oscar, 'Immigration, Social Dialogue and Economic Growth in the Old Periphery of Europe: The Celtic and Latin Tigers?
' in Irish Migration Studies in Latin America, 5:2 (July 2007), pp. 112-116. (www.irlandeses.org), accessed .


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