Inward investment plummeted over the past two years as multinationals were wooed in record numbers to low-cost east European countries, new research by Ernst & Young shows.

New investment projects plunged 55 per cent in 2001-02, against a 4 per cent fall across Europe as a whole. The contrast with emerging east European economies - in which investment rose 32 per cent in the same period - could not have been more pronounced.

The Republic attracted 31 projects in 2000, 12 in 2001 and only eight last year. Project size also diminished significantly, generating 29 per cent fewer jobs in 2002 than in 2000. Pharmaceuticals have since staged a recovery, with 10 investments announced this year compared to six in the previous 12 months. Technology investment continues to decline sharply, however. Britain and France remain the top investment locations, though start-ups that both attracted fell marginally over the past two years.

Investment in Dublin shrank 20 per cent since 2000. The city failed to make the top 20 of European investment centres, outranked by Istanbul, Lithuania, Budapest and Bucharest. Other EU states also suffered, with only Portugal reporting a rise in investment. Analysts said the Republic must challenge harder to win new projects.