Despite recent troubles in the high-tech sector, the European Commission has commended the Republic's fast growth in the area for boosting productivity growth here above US levels.
But the Commission also highlights weaknesses in research & development (R&D) investment here and a slow spread of new technologies throughout households.
The Commission's competitiveness report 2001 shows the Republic reported an impressive 9.2 per cent growth in manufacturing productivity between 1996 and 2000.
This was substantially above the US rate of 5.5 per cent and means the Republic has overtaken Austria, which reported the biggest increase between 1991 and 1995.
The greatest influences on increasing productivity and growth were capabilities, knowledge, information and communications technologies, and research output.
Technology-driven countries such as the Republic were taking the lead in productivity increases, the report found.
It noted the economic outlook had started to weaken and the recent terrorist attacks had increased uncertainty of a recovery. But it stated that neglecting the long-term priorities would be a serious mistake.
The report highlights growth in R&D input and output here, and says the Republic enjoys a high share of technology-driven industries.
The Republic has the highest share of high-tech products in total exports, at 41 per cent, substantially above the second-placed nation, Finland, at 26 per cent.
However, the report also points to some weaknesses in the Republic's economy. It says the Republic still has low levels of public R&D expenditure. Business R&D investment is moving towards the EU average, the report says.
It also notes that the number of homes using technology here is low.
"For ICT [information and communications technology], Ireland ranks high in consumption and in the production share of ICT industries in manufacturing, but only moderately in respect of diffusion [internet hosts and computers per residence]."
The report highlights a strong correlation between telecom costs and internet penetration levels in the EU. The Republic is placed ninth of 16 countries surveyed in terms of internet penetration in the EU and US.
On a European-wide basis during the 1990s, there was a trend towards convergence in the supply of human capital and the spread of ICT.
By contrast, member-states have diverged in patent activity, relative importance of ICT production, and employment in high-tech services.
Skills are highly rated due to an efficient education system and a large supply of science and technology graduates, says the report.
"Ireland has built its remarkable catching-up process on its attraction of foreign capital, but it has indigenously connected inward investments with local strengths."
Some 15 per cent of EU computer exports and 10 per cent of chemical exports come from the Republic, says the report.
It also highlights a widening gap between the US and the European Union in terms of gross domestic product, a measure of standard of living.
On a EU-wide basis, strong US growth in the late 1990s led to a wider gap and EU GDP is now less than two-thirds that of the US - this is the largest gap we have seen since the 1960s.
The report highlights the lower employment level in the US and lower EU productivity, with average output per person 25 per cent below the US level.
The Republic was one of five EU countries that registered higher labour productivity growth than the US, in part due to its high-tech expansion.
The other countries were Luxembourg, Greece, Portugal and Finland. These nations also reported employment growth higher than the US.
The report concludes that the EU has been a late entrant in biotechnology, and that firms are too small and too specialised in niches. It notes, however, that the Republic, the Netherlands, Denmark, Sweden and Finland have specialised successfully in biotechnology.
