Much of what the general public and media base their assumptions on a country’s current standings goes with the profits being reported by foreign multinational corporations that reside in that country. These multinational corporations (MNC’s) have tended to flatter Irish’s GDP growth. Since most of these profits are beneficial to foreign parents instead of the Ireland economy, they do not affect international measurements such as GNI. But in recent years, actions taken by these firms have seen effect to not only GNI but GDP as well.
The differences are now that the large capital assets owned by these MNCs are now operating in Ireland. And these Intellectual property assets are often owned by information technology companies. This asset from abroad contribute to GDP not because of the act of acquisition itself, but once these assets are acquired. The deprecation of the asset and land in Ireland affect the statistics. The deprecation of these assets must be included in the GDP and GNI, as that is what the “G” stands for.
In 2015, many of these large MNCs decided to move a large block of IP into the ownership of its residential affiliates. This led to a shocking 26% GDP growth in that one year, which largely affect the GDP.
The other factor that changed the GNI relations to how these multinational corporations have moved their global headquarters to Ireland. This has led to many of the undistributed profits to be included in Ireland’s statistics. These profits already exceeded 5% of the GNI in 2012. In 2019, Ireland’s GNI was about 40% below the GDP of the country, whereas the GNI and GDP in most countries are very similar level. To look at the disparity here and pinpoint the issue, if we were to subtract the GDP inflation caused by these large corporations, we will find that the GDP has dropped so much that the student done by the Central Bank of Ireland would have listed Ireland in 8th place, instead of 2nd place based on its GDP.
This may not be a perfect measurement, but it gives a perspective on how much the GDP has been inflated by international companies that have only recently moved to Ireland with their companies and businesses. When the comparison is made like this. Ireland doesn’t even stand within the top 25% of countries.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.
Relevant Links: GDP, How to summarize wealth in a country, Global Firms National Accounts, Ireland’s Situation
