Expenditure on research and development in 2004 was €1.78 billion, an increase of 10.7 per cent when compared to the previous year, Forfás said yesterday.

In a report on R&D spending, the policy advice body said the Irish spend as a percentage of gross national product (GNP) in 2004 was 1.43 per cent.

The European Union average is 1.85 per cent of gross domestic product (GDP) while the Organisation for Economic Co-operation and Development (OECD) average is 2.24 per cent.

Gross expenditure on R&D in 2004 came mostly from industry (63.9 per cent), with public funding being 34.4 per cent and the rest coming from "other" sources.

Despite growing in monetary terms, business expenditure on R&D remained static when looked at as a percentage of economic activity. Business spend in 2004 was €1.15 billion, up from €988 million in 2002, according to Forfás.

The higher education sector increased its R&D spend to €492 million in 2004, from €322 million in 2002.

This represented an increase of 53 per cent.

"The continuous improvement in R&D performance will assist Ireland in boosting the competitive position of our goods and services in the international marketplace," said Martin Cronin, chief executive of Forfás.

He said that, while planned increased expenditure on R&D would provide a base on which to build, it was vital that further investment was promoted so that the targets in the national R&D action plan could be met.

"The key challenge will be to accelerate the positive trend in business R&D performance, backed by continued increases in publicly-funded R&D."