Success of the economy now depends very heavily on the progress of domestic business
In recent years it has been very difficult to understand the performance of the Irish economy. However, last autumn the CSO published new detailed figures which, when appropriately analysed, provide a detailed picture of economic growth between 2013 and 2018.
In his Special Article, Understanding recent trends in the Irish economy, John Fitzgerald suggests that the best measure of the economic welfare of those living in Ireland is Net National Product (NNP), derived from the latest CSO Institutional Sector data. On the basis of the new CSO information, the contribution to NNP by each industrial sector is broken down by foreign and domestically owned businesses.
The results indicate that real NNP grew by around 5 per cent a year between 2013 and 2018. Instead of exceptional and erratic growth rates, as seen in the headline CSO data for GNI, the pattern shown here for NNP is smoother and more plausible.
While foreign firms account for over half of the Gross Value Added in the economy, they only account for a fifth of NNP and a quarter of the wage bill. Foreign and domestic firms grew at a similar rate since the economy began to recover in 2013.
While the contribution to growth of foreign firms has been concentrated in the manufacturing, IT, financial and distribution sectors, the growth of the domestic sector has been spread across the economy. In both the manufacturing and the IT sectors, the contribution to NNP of domestic business is similar to that of foreign firms.
These results indicate that, while foreign multinational enterprises make a very valuable contribution to growth, the success of the economy now depends very heavily on the progress of domestic business.