Minister for Finance welcomes publication of Department of Finance/ESRI Working Paper

Minister for Finance welcomes publication of Department of Finance/ESRI Working Paper, “A Cross Country Perspective on Irish Enterprise Investment: Do Fundamentals or Constraints Matter?”

The Minister for Finance Michael McGrath welcomes the publication of the paper, “A Cross Country Perspective on Irish Enterprise Investment: Do Fundamentals or Constraints Matter” under the Department of Finance’s Joint Research Programme with the ESRI.

This paper examines investment patterns of SMEs across countries after the global financial crisis to determine if there is a difference in behaviour between firms based in Ireland and firms in a selection of other countries. This research utilises the World Bank Enterprise Survey to examine investment patterns of SMEs across countries.

Some key findings:

• there is a clear underinvestment in research and development for Irish enterprises when compared with a broad group of similar Northern European economies
• domestic focused firms, those without basic digital offerings and those not relying on foreign technology are both much less likely to invest in R&D. If they do invest the level of investment will be lower. This is a notable finding and indicates support for digitalisation and internationalisation as it suggests that sales and inputs into the production process are likely to boost R&D expenditure
• in terms of cause, financial factors do not appear to be a major barrier to investment in R&D
• when Irish firms do invest in R&D, the relationship between their growth and the level of spending on R&D is higher for Ireland than other countries
• lower investment levels in Tangible Fixed Assets [TFA] was not found relevant to other countries, but on balance Irish firms are investing lower in TFA than other small Northern European economies. There are some Northern European countries which have a higher share of firms investing
• financially constrained firms and those with high indebtedness relative to income have lower investment in TFA
• investment in TFA by Irish firms would be higher if they reacted in a manner similar to their European peers
• financially constrained firms and those with high indebtedness relative to income have lower investment in fixed assets

The complexity of determining the extent to which Irish firms are underinvesting is driven by heterogeneous effects. Understand and monitoring investment requirements over time is going to require extensive data on asset types across firms.

Commenting on the release, Minister for Finance Michael McGrath said: