There are serious flaws in the Government's case for regionalising the State for EU structural fund purposes, a leading Irish economist, Mr Jim O'Leary, has claimed. He calls on the Government to maintain the State as one EU region but to use other methods to address regional disparities. Mr O'Leary, chief economist at Davy Stockbrokers, was speaking on regional perspectives on economic development yesterday at a conference in Oranmore, Co Galway, "European Support for Ireland, 2000-2006".

Mr O'Leary's case is the criteria being used to evaluate the relative needs of seven regions in the State, gross value added per capita (GVA), is deeply misleading as a measure of wealth and hence would distort regional policy priorities. He argues that a better measure of wealth, household income, produces a dramatically different picture of wealth distribution - one in which two of the three regions being suggested for continued Objective One status, the Midlands and the West, emerge as second and third in the national wealth league behind Dublin, instead of bottom when measured by GVA.

The Border region's relative position near the bottom of the league remains substantially unchanged.

There are three reasons for the discrepancy, Mr O'Leary says. Firstly, GVA includes the total profits of companies based in a region and only some 14 per cent of the value added in the Irish operations of manufacturing companies accrues as wages (in Irish firms the figure is some 42 per cent). Parts of the State dependent on foreign multinationals will therefore see a disproportionately large figure for GVA when in fact much of this leaves the State in profits.

Secondly, household income data include elements not attributed in GVA such as welfare payments which effectively redress national imbalances.

Thirdly, GVA data include payments made to workers who live outside the region - a significant factor, particularly in Dublin but probably also in the Midlands.

Ranking regions by average household income, a better if not perfect measure according to Mr O'Leary, not only produces a different ranking of priorities but shows the gap between regions is significantly less dramatic than GVA suggests - gaps between the richest and poorest regions shrink from 73 per cent to just 29 per cent.