Ireland's economic model is in urgent need of reform to sustain high living standards, according to a new report.
The study, by University of Galway Professor Alan Ahearne, said Ireland has some of the highest productivity rates in the world but this is being driven by foreign multinationals not domestic firms.
The research was funded by Irish brothers, John and Patrick Collison, who founded global payments company Stripe, which is valued at more than €135 billion.
Professor Ahearne, a former economist at the US Federal Reserve who later advised Taoiseach Micheál Martin, said Ireland was heavily reliant on a relatively small number of multinationals and needed to create indigenous high-growth firms.
"The level of productivity at foreign firms is around six times the level of productivity of domestic firms," he said.
He added the productivity of indigenous companies was "unexceptional".
The study said the reliance on multinationals was seen by many commentors as a "structural vulnerability of the Irish economy which public policy should seek to address".
Foreign-owned companies also produce three-quarters of Ireland's goods exports.
Mr Ahearne’s study said over the past 50 years, real income per person, adjusted for inflation, had tripled, rising from about €17,500 in 1970 to over €53,000 in 2023, with economic growth largely driven by investment from the US.
The report said: "Ireland could, and should, do better at encouraging and supporting high-growth indigenous businesses.
"Ireland should now consider how to use tax policy to attract human capital (talent) from abroad to augment our existing talent base."
The 'war for talent'
The study says global developments mean domestic companies might soon become the main drivers of technological progress. But it warns that there is serious doubt about their capacity in this regard at present.
The research paper says recent geopolitical developments are "radically shifting the global landscape for flows of foreign direct investment" and that Ireland needs to be better prepared for the consequences.
It says that the country needs to do more to attract and retain people with "strategic vision" and the capacity to mentor and drive domestic entrepreneurs.
Prof Ahearne says there is intensifying competition amongst countries in the "war for talent" in an effort to attract, develop and retain highly talented leaders.
John and Patrick Collison said the research pointed to the crucial role of talent and human capital in creating and fostering self-reinforcing clusters of innovation.
"Among the policy levers available to Irish policymakers, the research paper noted the potential use of tax policies to attract skilled professionals from abroad, similar to approaches recently introduced in other countries, and that they will likely prove the most impactful," they said.
