Labour Productivity and Foreign Direct Investment in Irish Manufacturing Industry: A Decomposition Analysis

Abstract

Overall labour productivity in the Irish manufacturing sector increased by 158 per cent between 1991 and 1999. This growth in labour productivity coincided with strong growth in employment during the same period, in stark contrast to the experience of other European countries. This paper examines the components of this labour productivity growth in the period 1991-1999, using a decomposition analysis based on plant level data. In order to account for the large presence of foreign plants we carry out our analysis separately for foreign and domestic plants, as well as for four ownership subgroups, four sectoral subgroups, and two time sub-periods. Our results show that although the main drivers of average labour productivity growth in all groups arise within plant and from plant entry, there are marked differences in the relative sizes of these effects across the ownership/sector/time-period.