As Ireland’s economy has become more globalised, we can see the impact of this on the make-up of Ireland’s current account balance with the US. Ireland’s current account with the US has increased from a deficit of €9.6bn in 2012 to a surplus of €1.7bn in 2018.
The current account balance with the US can be explained by three main components, which are large exports of pharmaceutical goods to the US, Ireland’s large outflows of payments for research & development (R&D) services and outflows of profits from US direct investors back into the US.
With analysis we see an increase in US multinational corporations investing in Ireland and exporting back to the US. We also see the impact of goods for processing/contract manufacturing on the overall export figures.
On the other side, imports of services and income outflows with the US impact the current account balance as a result of large ongoing payments to the US for R&D services on the behalf of affiliated intergroup multinational corporations and large outflows of profits from direct investment. Further research would benefit from analysing ultimate FDI income paid to the US in order to explain the profit outflows returning to the US and to US intermediaries. The overall result is a current account balance with the US which fluctuates around zero, with exports of goods counterbalanced by imports of services and outflows of profits.
Further information on many of the concepts discussed in this note are available in our series of notes and publications including information on Ireland’s trade balance, foreign direct investment asymmetries, goods for processing/contract manufacturing and more.
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