A drive around Ireland cannot help but reveal the extent to which the State has benefited from becoming part of the European Union.

Large blue and white signs at the roadside tell us that many of the major infrastructure projects have been completed with the help of grants from the EU and if you look back at the developments in the economy over the past few decades, you would probably be quite justified in connecting the upturn in the Republic's economy with the country's decision to join the EU.

"Without doubt, Ireland has benefited significantly from joining the EU and the new investment that it has brought with it," says Austin Hughes, chief economist at IIB Bank in Dublin.

"A lot of the economic improvements can also be attributed to the constructive ways in which policymakers used the new incoming investment."

While some economic observers are quick to dismiss Ireland's Celtic Tiger boom as having been born in Brussels and fuelled by German pocket money, others are more keen to commend the State's use of these funds - after all, they are available to all member states.

Hughes believes what helped Ireland use the funds in a more constructive way than other member states was the IT revolution, the nation's demographics, and the fact that a lot of businesses had learned about the importance of remaining competitive during the 1980s.

He says the success of the Republic's economic recovery and the ensuing birth of the Celtic Tiger have many origins.

The European Community was originally set up by European governments in 1961, when six countries signed the Treaty of Paris - an agreement to integrate their coal and steel industries. Over the years, other countries have joined the community and the areas of co-operation have increased, resulting in the formation of a single market and a single currency.

Today, there are 25 member states in the EU, with the most recent newcomers - 10 countries from eastern and southern Europe - joining in 2004. The Republic joined in 1973 and since that date has benefited significantly from being part of the union.

Membership has given Ireland's exporters full access to the single European market, which in turn has made a substantial contribution to Ireland's economic success.

Membership has also been particularly important in attracting foreign direct investment into the country. Moreover, since accession, per capita GDP in Ireland has increased from almost 60 per cent of the EU average in 1973 to more than 100 per cent today, making Ireland one of the wealthiest populations in the union.

The proportion of exports to non-UK destinations has increased from 45 per cent to 74 per cent, and Ireland's farmers have also benefited significantly from the Common Agricultural Policy (CAP).

From 1973 to 2003, Ireland received more than €17 billion in EU structural and cohesion funds, helping the country to improve its physical and social infrastructure and boost employment. So while Ireland has so far benefited greatly from being a member of the union, the question now is where its future lies in an enlarged EU.

As mentioned earlier, the most recent newcomers - the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia - joined on May 1st, 2004.

Enlargement of the union and, in particular, the opening up of the union eastwards to countries that are generally less developed than many of the western European nations, brings with it a raft of opportunities and challenges.

At its most basic level, enlargement will enable businesses to benefit from increased trade, greater efficiencies and more competition. It should also lead to increased investment, higher levels of job creation and a boost to levels of prosperity.

However, there are also challenges. Firstly there is the expansion of the potential labour market and the effect this will have on individual workforces.

Following the accession of the new members, the Republic, the UK and Sweden were the only countries to open up their labour markets to citizens of the new member states.

Figures released by the Central Statistics Office last week show that the Irish labour force increased by 92,000 last year to just over two million, with almost 50,000 of this figure coming from inward migration.

Overall, more than 65,000 people from the 10 new member states are now in the Irish labour force, more than double the figure recorded a year earlier. While this should not be a problem for a country with full employment, we shall examine the issue of migratory workforces in more detail next week.

The second main challenge facing Ireland as part of the enlarged union is the increased competition for inward investment. According to the latest figures from the United Nations, foreign direct investment into Ireland fell by more than half in 2004 to $9.1 billion (€7.65 billion).

This decline is in line with a drop in overall investment into the EU, as many companies shift investment to low-cost economies in Asia.

However, it is likely that as the profile of the new eastern European member states rises, more of the investment is likely to find its way into their coffers.

"In terms of inward investment, the expansion of the EU poses a huge challenge for the Irish economy," says Jim Power, chief economist at Friends First.

"Ireland isn't going to be able to compete with these countries on costs, so it has got to focus on some of its other key attributes," he says.

This is something Hughes does not believe is going to be a problem. Thanks to the IT revolution, Ireland's focus has switched from basic manufacturing and is now on high value-added products and solutions such as computers, electronics and pharmaceutical devices.