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Globalisation in economics is the increasing interconnectedness of production and consumption around the world. When we say that Ireland is a globalised economy, we mean that most of the goods and services produced here are created using goods and services produced in other countries, and, after being produced, they are then sold on outside Ireland too.

There are many large global corporations in Ireland that have a production process that stretches around the world. They might have owners in country A, with a holding company in country B, which then owns an operations headquarters in country C; they do their research and development for new products in country D, buy the raw materials in country E, manufacture them in country F, sell the finished product to their wholesale division in country G, which then sells them on to retailers in country H. We call this a global value chain. in the above example, Ireland might be any of country A, B, C ... or H, depending on the company. In some cases, Ireland may be two or three different parts of the chain with other countries in between.

Companies locate a part of their production process in a country for many reasons, often with trade-offs between competing demands. For example, a country might have a skilled workforce, but the labour costs might be high. The country might have high levels of security and political stability but heavy regulatory burdens. There might be easy access to raw materials in one place but it might have poor infrastructure and be far from the biggest markets. In a country with low taxes there might be high demand for services driving up other costs of doing business. Corporations consider all these factors before deciding where to invest.

Globalisation has advantages but also some disadvantages. It has brought employment to Irish workers and tax revenue to the Government as foreign companies have invested here. These advantages for Ireland are disadvantages for the countries where the investment might otherwise have gone. There have been job losses for Ireland too, as the easy flow of capital has led to many companies leaving over the years. Wages can be driven down by companies so easily moving to where labour is cheaper. Globalisation also means new small enterprises must compete with large multi-nationals for markets and for workers, which can have disadvantages for innovation. On the other hand, global corporations can bring knowledge and skills to employees who can go on to develop new enterprises with the knowledge they have acquired.

All of the goods and services flowing through Ireland make the economy seem very big, but the flows in and out leave much less in the domestic economy than appears in GDP. In Ireland's National Accounts we have indicators which take out the distorting effects of globalisation. These new indicators include Modified Total Domestic Demand and Modified GNI. Important concepts for globalisation and Ireland are Foreign-Owned Corporations, Intellectual PropertyContract Manufacturing and Redomiciled PLCs

Read next: Redomiciled PLCs

A-Z of National Accounts

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