Satellite accounts needed to understand Ireland’s globalised economy

Publication Link

The traditional National Accounts published by the CSO need to be supplemented by satellite accounts in order to understand the globalised economy in Ireland. The existing National Accounting framework, which has provided vital information for policymakers and for wider society over the last 50 years, cannot handle the complexities of globalisation in its existing form.

The purpose of the satellite accounts would be to separate out the activities of foreign Multi-National Enterprises (MNEs) in each sector of the economy. This is necessary to understand the contribution of domestic and foreign MNEs to growth in individual sectors of the economy, such as manufacturing.

The additional data would help to understand whether the output produced by labour and physical capital in Ireland is growing, and if so by how much. It must also show what is happening to the resources available to those living in Ireland to consume and invest. Finally, it must help to understand what is driving growth in Ireland.

National accounts were developed to meet a range of needs of policymakers in managing a modern economy. It has proven difficult to measure the effects of the movement of intellectual property from one economy to another. Intellectual property, which is now part of the capital stock, interacts with the choice of global firms as to their legal structure, producing different national accounting outcomes for individual countries, including the “incredible” growth recorded for Ireland in 2015.This issue particularly affects Ireland, but it also results in an underestimate of growth in some key sectors of the US economy.

The main driver of the shifting of profits and activity related to IP is US tax law. The revision last year to US tax law is unlikely to alter this pattern of behaviour, and it may even see significant further relocation to Ireland. Companies headquartered in countries such as the UK and Germany do not seem to face the same incentives to relocate profits to Ireland because they face a different domestic tax regime.

The CSO has produced some important new data. By the end of the year, this may provide the additional information needed to properly understand recent developments in the Irish economy.

© 2015 The Economic and Social Research Institute. All rights reserved. Website by JET Design