There are a number of causes of FDI, some of which can be applied to almost all foreign investment, and others that are specific to the country in which the investment is being undertaken. The more general causes of FDI are:

This refers to the comparative advantages or natural resource advantages held by a particular country compared to another. If a country has a comparative advantage over another, (i.e. higher factor endowments compared to the other country) then it makes sense for the country with the lower factor endowments to invest in the other country and benefit from the higher productivity there.

For example lower labour costs or higher labour productivity in one country would encourage firms in another country (without these benefits) to invest and produce in this c

The extent of profit repatriation has led to a negative balance of payments on current account. Ireland runs a large deficit on net factor income, the main element of which arises from the distribution of branch profits to their foreign owners. This introduces a wedge of some 10-12 per cent between GDP and GNP.

European Monetary Union in Ireland will encourage investors from outside of the EU if they wish to aim products at other countries within EU. The risks and problems associated exchange rate fluctuations will be eliminated and so FDI in Ireland will be encouraged. Ireland is a member of the European Community. As a result there is unrestricted trade between Ireland and other EU members. This increases Ireland's attractiveness for firms (wishing to sell in Europe). Trade liberalisation, in general, between Ireland and other countries (e.g. US) has promoted FDI in Ireland.

An arguably more plausible hypothesis is that the strong FDI inflows led to excessive wage demands, through the impact on wages of the high productivity growth of the foreign sector. This could have led to an excessively rapid decline of the traditional manufacturing sectors (who display slower productivity growth), and an increase in unemployment. Only over the last decade, has the decline in indigenous manufacturing employment been halted and strong growth in indigenous exports achieved.

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Approximate Word count = 3012
Approximate Pages = 12 (250 words per page double spaced)