## sipea2025089

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---

### Key channels of geoeconomic fragmentation considered
- Supply chain disruptions through reduced access to critical imported inputs.
- Trade distortions resulting from tariff increases.
- FDI relocation, including driven by tax policy changes and corporate restructuring.

### Ireland’s integration and exposure
- Exports and imports of goods and services exceeded 250 percent of GDP in 2024.
- Almost two-thirds of domestic value added is being exported.
- Foreign-owned firms accounted for 31 percent of NNP and 36 percent of wages in 2022.
- Important global presence in pharmaceuticals and computer programming and information services.
- Geographic concentration of goods exports:
  - About 40 percent of goods exports go to EU countries.
  - Close to 30 percent of goods exports go to the US.
- Services imports dominated by the US (about 50 percent of total), mostly royalties and licensing fees related to the use of IP.
- Network centrality: pharmaceutical sector has highest Katz centrality ranking among Irish sectors, followed by computer programming and manufacture of computers and electronics.

### Foreign-dependent (FD) goods and services: identification, scope, and geographic risk
- Methodology follows European Commission indicators: (i) concentration of EU imports from extra EU sources; (ii) importance of extra EU imports in total demand; (iii) substitutability of extra EU imports with EU production.
- In 2022, imports of foreign-dependent goods comprised about 3.5 percent of total Irish imports.
- About 200 such products at the HS6 level; largest single good was "medicaments not packaged for retail sale".
- Only three categories of services classified as foreign-dependent by this methodology, but their import value is about half of all imports—driven by licences for use of R&D.
- Geographic risk under two illustrative scenarios:
  - Scenario 1 (high-risk = countries that did not support UNGA Resolution ES-11/6): share of FD goods from high-risk countries is about 16 percent.
  - Scenario 2 (high-risk = every country outside of the EU): share of FD goods from high-risk countries is about 90 percent.
  - For FD services, most imports originate from the US; share of FD services from high-risk countries is negligible in Scenario 1 and close to one in Scenario 2.

### Modeling the impact of reduced access to FD inputs
- Framework: Cobb-Douglas production function with capital, labor and intermediate inputs; intermediate inputs as a CES aggregate of FD and non-FD products. Uses CEPII BACI trade data and FIGARO industry-by-industry input-output tables for 2022.
- Elasticity of substitution between FD and non-FD inputs is key; literature estimates:
  - Near 0 in the short run (Leontieff-like).
  - Typical values around 0.2–0.5.
- Illustrative results for a 50 percent reduction of imports of FD goods and services under Scenario 1:
  - Elasticity of substitution = 0.02 → contraction of total value added in Ireland of about 2 percent.
  - Elasticity of substitution in the range 0.1–0.2 → contraction of total value added of less than 1/2 percent.
- Non-linearity:
  - A 75 percent reduction in FD imports results in almost 5 percent decline in value added (under same illustrative assumptions).
- Heterogeneity:
  - Significant heterogeneity across sectors; elasticities vary across products and are especially low in the very short run.

### Scenarios and simulation assumptions for reduced access to FD goods and services
- Base assumption: 50 percent cut in imports from “high-risk” countries to assess implications.
- Two scenario definitions and associated elasticities:
  - Scenario 1 (narrower definition): elasticity of substitution between FD and non-FD inputs = 0.02.
  - Scenario 2 (adverse case, only EU countries considered “low-risk”): elasticity of substitution between FD and non-FD inputs = 0.2.
- Note on classification:
  - Scenario 1 classifies countries based on the vote of UNGA Resolution ES-11/6 of 23 February 2023; countries that supported the resolution are “low-risk”.
  - Scenario 2 assumes all countries outside of the EU are “high-risk”.

### Key findings from the FD inputs reduction simulations
- Aggregate impact:
  - Overall decline in value added is similar in both scenarios: about 2 percent.
- Sectoral impacts:
  - Manufacture of refined petroleum suffers largest drop in value added in both scenarios; drop much more pronounced when elasticity = 0.02. Sector’s relatively low weight in value added implies small contribution to overall decline.
  - Construction and manufacture of computers have largest contributions to overall decline in value added.
  - In Scenario 2, main drivers of value-added contraction:
    - Manufacture of pharmaceuticals
    - Publishing activities (includes software publishing)
    - Air transport
  - Scenario 2 drivers reflect significant dependence on imported inputs from the US.

### Role of Foreign Direct Investment (FDI) and Multinational Enterprises (MNEs)
- Sectoral concentration of FDI:
  - Majority of FDI directed toward pharmaceuticals, financial services, and information and communication.
  - Large MNEs in these sectors contribute to employment, gross value added, and tax revenues.
  - O’Grady (2024) finds foreign-controlled firms are typically more interconnected and have greater-than-average influence on the broader economy.
- Geopolitical vulnerability:
  - An IMF (2023b) geopolitical index captures vulnerability from geopolitical distance; Ireland has one of the highest geopolitical indices among EU countries.
  - High reliance on investment from the US increases exposure.
- Sectoral and geographic concentration (HHI measures) show high concentration of controlling entities.
- US MNEs’ contributions to sectoral value added in Ireland (OECD-based data):
  - Pharmaceuticals: 73 percent (US MNEs) + 12 percent (non-US MNEs).
  - IT services: 85 percent (US MNEs).
  - IT manufacturing: 66 percent (US MNEs).
- High dependence on US MNEs increases vulnerability to shocks that could slow, halt, or reverse FDI.

### General equilibrium framework, calibration, and limitations
- Model: BHLP model with features: labor supply formulation (fixed and flexible options), nested CES for final and intermediate goods, Armington differentiation, competitive firms with CRS.
- Limitations: no capital, no role for uncertainty; results interpreted as long run given absence of frictions other than trade costs.
- Trade cost modeling includes iceberg costs for final goods τ^mfn_f and intermediate inputs τ^{m,mn}_x; tariff increases modeled as increases in trading costs.
- Global aggregation for simulations: seven blocks (indigenous Irish firms; foreign-owned firms operating in Ireland; rest of the European Union; United States; United Kingdom; China; rest of the world) with 41 economic sectors each.
- Revenue from tariffs ignored for simplicity.
- Calibration details:
  - Uses Multinational Enterprises and Global Value Chains dataset to distinguish domestic- and foreign-owned firms.
  - Frisch labor supply elasticity = 2.8.
  - Sectoral labor supply elasticity = 1.5.
  - Elasticity of substitution of intermediate inputs across sectors = 0.2.

### Simulated shocks and quantitative results
- Two main shocks analyzed:
  - Higher import tariffs (consistent with tariff announcements as of mid-April 2025).
  - Relocation of FDI (decline in FDI stock in Ireland).
- Tariff assumptions (mid-April 2025 consistent):
  - 145 percent tariff on US imports from China
  - 125 percent tariff on Chinese imports from the US
  - 25 percent tariff on US imports of automobiles
  - 10 percent tariff on US imports of all other goods (pharmaceuticals and electronics exempt)
- Tariff scenario results:
  - Value added declines:
    - Indigenous sectors: −0.4 percent.
    - MNE-dominated (foreign-owned) sectors: −1 percent.
  - Largest industry losses: manufacture of pharmaceuticals; agriculture; foods and beverages; computer and electronics sectors.
  - Even though pharmaceuticals and electronics are exempt, demand for these products declines due to weaker growth in key trading partners after the tariff shock.
  - Declines larger in foreign-dominated sector because it is mostly externally-oriented.
  - Caveat: model excludes capital and uncertainty; dynamic settings with different assumptions produce larger effects.
  - Alternative estimate: Egan and Roche (2025) estimate a negative impact on Irish GDP of about 2½ percent after seven years under a 10 percent bilateral tariff on all goods, including pharmaceuticals and electronics.
- FDI relocation scenario assumptions and results:
  - Illustrative scenario: 50 percent decrease in the stock of FDI in the ICT services sector (in the model simulated as a 30 percent drop in productivity).
  - Results:
    - Foreign-dominated sector: −25 percent value added.
    - Indigenous segment: −0.7 percent value added.
  - Large divergence implies limited spillovers in the model, partly reflecting assumption of no labor reallocation between foreign-owned and indigenous segments.
  - Decline in GDP primarily driven by contraction in the ICT services sector where relocation occurs.
  - Indigenous ICT services sector increases (substitution effects) given substantial decline in foreign-owned segment.
  - Most other sectors experience modest and relatively homogeneous contractions for non-ICT related foreign-owned industries due to overall drop in demand from loss of income in the ICT sector.
  - Measurement note: results reported in terms of value added; in Ireland, modified gross national income (GNI*) and modified domestic demand (MDD) are more relevant for domestic performance—sizeable decline in foreign-owned sector value added may have limited impact on GNI* and MDD.
  - Fiscal implications not captured: model excludes a fiscal sector and does not capture negative spillovers to corporate income tax revenue from lower gross value added.

### Quantitative parameter values explicitly used or reported
- Elasticity of substitution between FD and non-FD inputs:
  - Scenario 1: 0.02
  - Scenario 2: 0.2
- Overall decline in value added from 50 percent FD inputs reduction: about 2 percent
- Frisch labor supply elasticity: 2.8
- Sectoral labor supply elasticity: 1.5
- Elasticity of substitution of intermediate inputs across sectors: 0.2
- Tariff assumptions (mid-April 2025 consistent):
  - 145 percent tariff on US imports from China
  - 125 percent tariff on Chinese imports from the US
  - 25 percent tariff on US imports of automobiles
  - 10 percent tariff on US imports of all other goods (pharmaceuticals and electronics exempt)
- FDI relocation shock:
  - 50 percent decrease in the stock of FDI in the ICT services sector (simulated as a 30 percent drop in productivity)
- Model outcomes:
  - Tariff scenario: indigenous sectors value added −0.4 percent; MNE-dominated sectors value added −1 percent.
  - FDI relocation scenario: foreign-dominated sector value added −25 percent; indigenous segment value added −0.7 percent.
- Sectoral contributions of US MNEs to value added:
  - Pharmaceuticals: 73 percent (US MNEs) + 12 percent (other countries’ MNEs)
  - IT services: 85 percent (US MNEs)
  - IT manufacturing: 66 percent (US MNEs)
- Alternative estimate:
  - Egan and Roche (2025) — 10 percent bilateral tariff on all goods including pharmaceuticals and electronics → negative impact on Irish GDP of about 2½ percent after seven years.

### Aggregate assessment and relative importance of channels
- Under moderate shock assumptions, impact of supply disruptions and higher tariffs would be relatively contained in aggregate, with important sectoral heterogeneity.
- Potential FDI relocations could be associated with a sizeable loss of gross value added, though impact on the indigenous economy would be more limited.
- Three main sources of risk for Ireland:
  - (i) reduced access to critical imported inputs;
  - (ii) increased import tariffs in key trading partners;
  - (iii) relocation of FDI, especially intangible capital by MNEs.

### Policy recommendations and resilience measures
- Build fiscal buffers in good times to mitigate potential decline in fiscal revenue and allow flexible responses.
  - Use buffers to provide focused support and facilitate smoother resource reallocations in affected sectors.
- Promote linkages between dynamic MNEs and the domestic economy to foster innovation cooperation and increase spillovers and value-added.
- Improve infrastructure to bolster competitiveness and resilience.
- Continue EU engagement to further strengthen the single market, including advancing the Savings and Investments Union.
- Illustrative collaboration example:
  - The Tyndall National Institute brings together leading global companies and Irish SMEs in semiconductors technology and related areas, promoting startups and facilitating creation of high value-added jobs.

*Source: IMF staff calculations and the specified chapter content of sipea2025089.*

### 1. Openness to Trade and FDI __________________________________________________________ 3

### 1. Openness to Trade and FDI

### Key channels of geoeconomic fragmentation considered
- Supply chain disruptions through reduced access to critical imported inputs.
- Trade distortions resulting from tariff increases.
- FDI relocation, including driven by tax policy changes and corporate restructuring.

### Ireland’s integration and exposure
- Exports and imports of goods and services exceeded 250 percent of GDP in 2024.
- Almost two-thirds of domestic value added is being exported.
- Foreign-owned firms accounted for 31 percent of NNP and 36 percent of wages in 2022.
- Ireland is an important global player in pharmaceuticals and computer programming and information services.
- Geographic concentration of trade:
  - About 40 percent of goods exports go to EU countries.
  - Close to 30 percent of goods exports go to the US.
- Services imports are dominated by the US (about 50 percent of total), mostly royalties and licensing fees related to the use of IP.
- Network centrality: the pharmaceutical sector achieves the highest Katz centrality ranking among Irish sectors, followed by computer programming and manufacture of computers and electronics.

### Foreign-dependent (FD) goods and services: identification and scope
- Methodology follows indicators used by the European Commission: (i) concentration of EU imports from extra EU sources; (ii) importance of extra EU imports in total demand; and (iii) substitutability of extra EU imports with EU production.
- In 2022, imports of foreign-dependent goods comprised about 3.5 percent of total Irish imports.
- There were about 200 such products at the HS6 level; the largest single good was "medicaments not packaged for retail sale".
- Only three categories of services could be classified as foreign-dependent by this methodology, but their import value is significantly bigger—about half of all imports—driven by licences for use of R&D.
- Geographic risk under two illustrative scenarios:
  - Scenario 1 (high-risk = countries that did not support UNGA Resolution ES-11/6): the share of FD goods from high-risk countries is about 16 percent.
  - Scenario 2 (high-risk = every country outside of the EU): the share of FD goods from high-risk countries is about 90 percent.
  - For FD services, most imports originate from the US; the share of FD services coming from high-risk countries is negligible in Scenario 1 and close to one in Scenario 2.

### Modeling the impact of reduced access to FD inputs
- Framework: Cobb-Douglas production function with capital, labor and intermediate inputs; intermediate inputs represented as a CES aggregate of FD and non-FD products. Analysis uses CEPII BACI trade data and FIGARO industry-by-industry input-output tables for 2022.
- Elasticity of substitution between FD and non-FD inputs is a key parameter; literature estimates vary widely:
  - Near 0 in the short run (Leontieff-like).
  - Typical values around 0.2–0.5.
- Illustrative results for a 50 percent reduction of imports of FD goods and services under Scenario 1:
  - With elasticity of substitution of 0.02: contraction of total value added in Ireland of about 2 percent.
  - With elasticity of substitution in the range 0.1–0.2: contraction of total value added of less than 1/2 percent.
- Non-linearity of impact:
  - A 75 percent reduction in FD imports results in almost 5 percent decline in value added (under the same illustrative modeling assumptions).
- Heterogeneity:
  - Significant heterogeneity across sectors: some sectors are much more exposed and would incur more substantial costs.
  - Elasticities of substitution are expected to vary significantly across products and are especially low in the very short run.

### Aggregate assessment and relative importance of channels
- Under moderate shock assumptions, the impact of supply disruptions and higher tariffs would be relatively contained in aggregate, but with important sectoral heterogeneity.
- Potential FDI relocations could be associated with a sizeable loss of gross value added, though the impact on the indigenous economy would be more limited.
- The paper emphasizes three main sources of risk for Ireland: (i) reduced access to critical imported inputs; (ii) increased import tariffs in key trading partners; and (iii) relocation of FDI, especially intangible capital by MNEs.

*Source: IMF staff analysis from "GEOECONOMIC FRAGMENTATION: IMPLICATIONS FOR IRELAND", May 20, 2025.*

### 12.      To assess the implications of reduced access to FD goods and services, a 50 percent cut

### sipea2025089 - 12.      To assess the implications of reduced access to FD goods and services, a 50 percent cut 

### Scenarios and simulation assumptions for reduced access to foreign-dependent (FD) goods and services
- A 50 percent cut in imports from “high-risk” countries is assumed to assess implications of reduced access to FD goods and services.
- Two scenario definitions of “high-risk” countries:
  - Scenario 1 (narrower definition): elasticity of substitution between FD and non-FD inputs = 0.02.
  - Scenario 2 (adverse case, only EU countries considered “low-risk”): elasticity of substitution between FD and non-FD inputs = 0.2.
- Note on classification:
  - Scenario 1 classifies countries based on the vote of United Nations General Assembly Resolution ES-11/6 of 23 February 2023 on peace in Ukraine. Countries that supported the resolution are “low-risk”; the rest are “high-risk”.
  - Scenario 2 assumes that all countries outside of the EU are in the “high-risk” group.

### Key findings from the FD inputs reduction simulations
- Aggregate impact:
  - Overall decline in value added is similar in both scenarios: about 2 percent.
- Sectoral impacts (differences across scenarios and elasticities):
  - Manufacture of refined petroleum suffers the largest drop in value added in both scenarios; the drop is much more pronounced when the elasticity of substitution is low (0.02). Because the sector’s relatively low weight in value added, it contributes little to the overall decline.
  - Construction and manufacture of computers have the largest contributions to the overall decline in value added.
  - In Scenario 2, main drivers of the value-added contraction are:
    - Manufacture of pharmaceuticals
    - Publishing activities (includes software publishing)
    - Air transport
  - These Scenario 2 drivers reflect significant dependence on imported inputs from the US.

### Role of Foreign Direct Investment (FDI) and Multinational Enterprises (MNEs)
- Sectoral concentration of FDI in Ireland:
  - Majority of FDI directed toward pharmaceuticals, financial services, and information and communication.
  - Large MNEs in these sectors have established production bases and/or global headquarters in Ireland, contributing to employment, gross value added, and tax revenues.
  - O’Grady (2024) finds foreign-controlled firms are typically more interconnected and have a greater-than-average influence on the broader economy.
- Geopolitical vulnerability:
  - A geopolitical index (IMF, 2023b) captures vulnerability from geopolitical distance between source and host countries.
  - Ireland has one of the highest geopolitical indices among EU countries, indicating potential vulnerability to FDI shocks.
  - Ireland relies significantly on investment from the US; geopolitical distance between Ireland and the US is larger than among EU countries, increasing exposure.
- Sectoral and geographic concentration of MNE activities:
  - OECD AMNE and related datasets show high sectoral and geographic concentration (as measured by HHI) of controlling entities.
  - US MNEs’ contributions to sectoral value added in Ireland (OECD-based data):
    - Manufacture of pharmaceuticals: US MNEs contribute 73 percent of value added; non-US MNEs collectively account for another 12 percent.
    - IT services: US MNEs generate 85 percent of value added.
    - IT manufacturing: US MNEs generate 66 percent of value added.
  - High dependence on US MNEs leaves Ireland vulnerable to shocks that could slow, halt, or reverse FDI from these companies.

### General equilibrium framework and calibration
- Model framework:
  - BHLP model (Huo, Levchenko, and Pandalai-Nayar (2019); Bonadio et al. (2021, 2023)) used to estimate aggregate and sectoral value added responses.
  - Key features: labor supply formulation (fixed and flexible labor options), nested CES structure for final and intermediate goods, Armington differentiation across sourcing countries, competitive firms with constant returns to scale.
  - Limitations noted: no capital, no role for uncertainty, results interpreted as long run given absence of frictions other than trade costs.
- Trade cost modeling:
  - Final goods iceberg costs τ^mfn_f to ship good i from country m to n.
  - Intermediate inputs iceberg costs τ^{m,mn}_x to ship good i from country m to sector j in country n.
  - Tariff increases modeled as increases in trading costs for intermediate and final goods.
- Global economy aggregation for simulations:
  - Seven blocks: indigenous Irish firms; foreign-owned firms operating in Ireland; rest of the European Union; United States; United Kingdom; China; rest of the world; with 41 economic sectors each.
  - Revenue from tariffs is ignored for simplicity.
- Calibration details:
  - Uses Multinational Enterprises and Global Value Chains dataset to distinguish domestic- and foreign-owned firms.
  - Frisch labor supply elasticity set to 2.8 (following Chetty et al. (2011)).
  - Sectoral labor supply elasticity set to 1.5 (following Galle, Rodríguez-Clare, and Yi (2023)).
  - Elasticity of substitution of intermediate inputs across sectors set to 0.2.

### Simulated shocks and quantitative results
- Two main shocks analyzed:
  - Higher import tariffs (consistent with tariff announcements as of mid-April 2025):
    - Assumptions: 145 percent tariff on US imports from China; 125 percent tariff on Chinese imports from the US; 25 percent tariff on US imports of automobiles; 10 percent tariff on US imports of all other goods, except pharmaceuticals and electronics which are exempt.
  - Relocation of FDI (decline in FDI stock in Ireland):
    - Illustrative scenario: 50 percent decrease in the stock of FDI in the ICT services sector.
    - In the model (no capital), this is represented as a 30 percent drop in productivity.
- Tariff scenario results:
  - Value added declines:
    - Indigenous sectors: 0.4 percent decline.
    - MNE-dominated (foreign-owned) sectors: 1 percent decline.
  - Largest industry losses: manufacture of pharmaceuticals; agriculture; foods and beverages; computer and electronics sectors (these are among the most exposed to the US in goods trade).
  - Even though pharmaceuticals and electronics are exempt from tariffs in this scenario, demand for these products declines due to weaker growth in key trading partners after the tariff shock.
  - Declines are generally larger in the foreign-dominated sector because it is mostly externally-oriented.
  - Caveats: model excludes capital and uncertainty; dynamic settings with different assumptions produce larger effects. Egan and Roche (2025) estimate a negative impact on Irish GDP of about 2½ percent after seven years under a 10 percent bilateral tariff on all goods, including pharmaceuticals and electronics.
- FDI relocation scenario results:
  - Simulated 50 percent reduction in FDI stock in ICT services (30 percent productivity drop) yields:
    - Foreign-dominated sector: 25 percent drop in value added.
    - Indigenous segment: 0.7 percent decline in value added.
  - Large divergence implies limited spillovers in the model, partly reflecting the assumption of no labor reallocation between foreign-owned and indigenous segments.
  - Decline in GDP driven primarily by contraction in the ICT services sector where the relocation is assumed to occur.
  - Indigenous ICT services sector increases (substitution effects) given the substantial decline in the foreign-owned segment.
  - Most other sectors experience modest and relatively homogeneous contractions for non-ICT related foreign-owned industries due to an overall drop in demand from loss of income in the ICT sector.
  - Important measurement note: results reported in terms of value added; in Ireland, modified gross national income (GNI*) and modified domestic demand (MDD) are more relevant for domestic performance. A sizeable decline in foreign-owned sector value added may have limited impact on GNI* and MDD.
  - Fiscal implications not captured: model excludes a fiscal sector and does not capture negative spillovers to corporate income tax revenue from lower gross value added.

### Quantitative parameter values explicitly used or reported
- Elasticity of substitution between FD and non-FD inputs:
  - Scenario 1: 0.02
  - Scenario 2: 0.2
- Overall decline in value added from 50 percent FD inputs reduction: about 2 percent
- Frisch labor supply elasticity: 2.8
- Sectoral labor supply elasticity: 1.5
- Elasticity of substitution of intermediate inputs across sectors: 0.2
- Tariff assumptions (mid-April 2025 consistent):
  - 145 percent tariff on US imports from China
  - 125 percent tariff on Chinese imports from the US
  - 25 percent tariff on US imports of automobiles
  - 10 percent tariff on US imports of all other goods (pharmaceuticals and electronics exempt)
- FDI relocation shock:
  - 50 percent decrease in the stock of FDI in the ICT services sector (simulated as a 30 percent drop in productivity)
- Model outcomes:
  - Tariff scenario: indigenous sectors value added −0.4 percent; MNE-dominated sectors value added −1 percent.
  - FDI relocation scenario: foreign-dominated sector value added −25 percent; indigenous segment value added −0.7 percent.
- Sectoral contributions of US MNEs to value added:
  - Pharmaceuticals: 73 percent (US MNEs) + 12 percent (other countries’ MNEs)
  - IT services: 85 percent (US MNEs)
  - IT manufacturing: 66 percent (US MNEs)
- Alternative estimate: Egan and Roche (2025) — 10 percent bilateral tariff on all goods including pharmaceuticals and electronics → negative impact on Irish GDP of about 2½ percent after seven years.

*Source: IMF staff calculations and the specified chapter content of sipea2025089.*

### 22.      The multifaceted implications of geoeconomic fragmentation highlight potential

### 22.      The multifaceted implications of geoeconomic fragmentation highlight potential

### Key channels of impact
- Access to critical imported inputs: disruptions to imported inputs could impede production in sectors reliant on foreign intermediate goods.
- Increased tariffs by key trading partners: higher tariffs could reduce market access and lower output for export-intensive industries.
- Relocation of FDI by multinational enterprises (MNEs): outward relocation could produce sizeable declines in gross value added in affected sectors and reduce corporate income tax revenues.

### Sectoral and fiscal implications
- Aggregate output losses from disruptions to imported inputs and tariff increases:
  - Described as appearing manageable on aggregate.
  - Noted that sectoral disparities reveal that certain industries may face significant disruptions.
- Relocation of FDI:
  - Could be associated with a sizeable decline in gross value added in affected sectors.
  - Could produce reductions in corporate income tax revenues with economy-wide reverberations.
- Implication for fiscal policy:
  - Potential decline in fiscal revenue underlines the need for fiscal preparedness.

### Policy recommendations and resilience measures
- Build fiscal buffers in good times:
  - Purpose: to mitigate potential decline in fiscal revenue and allow for flexible responses to economic fluctuations.
  - Use of buffers: enable the government to provide focused support facilitating smoother resource reallocations in affected sectors.
- Promote linkages between dynamic MNEs and the domestic economy:
  - Mechanism: foster innovation cooperation between MNEs and domestic firms to increase spillovers and value-added.
- Improve infrastructure to bolster competitiveness and resilience.
- Continue EU engagement:
  - Objective: further strengthen the single market, including advancing the Savings and Investments Union.

### Illustrative collaboration example
- Existing example of MNE–domestic linkages:
  - The Tyndall National Institute brings together leading global companies and Irish SMEs in semiconductors technology and related areas, promoting startups and facilitating the creation of high value-added jobs.6

*Source: IMF — sipea2025089, chapter 22*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025089.pdf_