Our sense of what sort of economy Ireland is, of how well it has performed over the past decade or so and of how it might evolve in the period ahead, is very much shaped by the measures of economic activity to which we compare Ireland, writes Jim O'Leary, lecturer in economics at NUI-Maynoot

Our sense of what sort of economy Ireland is, of how well it has performed over the past decade or so and of how it might evolve in the period ahead, is very much shaped by the measures of economic activity to which we compare Ireland.

This was brought home to me recently as I perused the European Commission's Third Report on Economic and Social Cohesion, published a few weeks ago.The statistical annex to that report contains data that we in Ireland have been congratulating ourselves about for some years now.

It shows GDP per capita in Ireland was 17.6 per cent above the EU average in 2001. It also shows that, according to this measure of living standards, Ireland ranked second to Luxembourg among the 15 EU member-states, ahead of Denmark, the Netherlands and Austria (in that order), and ahead of the country that used to be regularly touted as the "richest in the world" - Sweden.

Of course, it could be objected that if GNP per capita were used as the indicator, Ireland would slip well down the rankings. However, that's not a point that I want to major on today.

For the purposes of what follows, GDP per capita will do nicely, warts and all. Indeed, it may well be the more appropriate of the two measures for today's purpose.

The first point I want to make is this: in comparing Ireland with other EU member- states, we are doing something that owes as much to political as to economic logic.

What Ireland has in common with all other EU member-states (indeed with all other states, be they EU members or not) is that it is a sovereign independent political entity with a sense of national separateness.

Furthermore, and crucially, it has its own statistical office whose purpose is to collect and publish data, much of which is the kind of data published only for nation states. Think of national accounts, for example.

But, in terms of the dimensions that define an economy's fundamental characteristics, we have little in common with many other EU members. Probably the most important of these dimensions is size, because so many other economic characteristics - such as openness and the degree of diversification of activity - flow from it.

Cutting to the chase, what I'm suggesting here is that, in order to advance our understanding of the type of dynamics that are at work in the Irish economy, it may make more sense to compare its performance with that of economies of broadly similar size or mass, rather than to benchmark it against other nation states. Unfortunately, this kind of exercise is usually hampered by a shortage of data. For most economies of a similar size to Ireland, much of the data required to make thorough comparisons of this type are simply not collected or are not published or, if published, are not readily accessible. In any event, such comparisons rarely feature in public discussion or analysis.

The value of the European Commission report cited above is that it goes some distance towards filling this gap. It contains data across a (narrow) range of indicators - not only for the 15 national economies of the EU, but also for the 75 regional economies into which the member-states are divided at what is called NUTS 1 level and the even greater number of smaller regional economies into which the EU is sub-divided at NUTS 2 level. At these sub-national levels, we find more and more economies of a broadly similar size to Ireland and the picture painted by the national data changes in some important ways.

First of all, while there is no national economy with higher GDP per capita than Ireland in 2001, there are 14 regional economies at the NUTS 1 level which together have a population of 90 million, almost a quarter of the EU total. Thus, while average GDP per capita in Germany was 17 per cent below the Irish level in 2001, four German regions (Bayern, Bremen, Hamburg and Hessen) were at levels above that of Ireland. Similarly, there were four Italian regions (North-West, North-East, Lombardia and Emilia-Romana) with higher GDP per capita levels than Ireland, even though Italy as a whole was about 18 per cent lower.

A second point that is worth noting is that the margins by which some of these regional economies outstrip Ireland are very large - it's not a matter of being "pipped at the post" as it were. Take Oberbayern, a German NUTS 2 region with a population of just over four million, for example. Its GDP per capita was almost 50 per cent above the EU average in 2001 and more than 25 per cent ahead of Ireland's. Or take Lombardia with a population about twice that of Ireland and GDP per capita almost 13 per cent higher. Stretching the point a little, it is worth observing that no mention has been made yet of the EU regions at the very top of the pile - Brussels and Inner London - economies (yes, economies) with levels of GDP per capita between two and three times the EU average.

So much for levels. What about rates of growth? Well, we know that there is no national economy in the EU that has grown as rapidly as Ireland in recent times. But the interesting increment of information contained in the European Commission report is that there is no regional economy that has done so either. Indeed, there is none that even comes close. The nearest that any NUTS 1 region came to matching Ireland's 9.2 per cent average annual GDP growth rate between 1995 and 2001 was London with a growth rate of 4.6 per cent. But that's Europe. Looking at growth rates among US regional economies of broadly similar economic mass to Ireland and for which data are available (metropolitan areas like Seattle, Houston, Detroit), there are a number that matched or came reasonably close to matching Ireland's growth rate during the 1990s (including Atlanta, Denver/Boulder, Dallas, Phoenix and San Jose).

There are, of course, important respects in which some of these economies differ from Ireland - physical rather than economic size, population density and so on. But there are important similarities too: reliance on trade with and investment from the rest of the world; the degree of concentration of production in a limited range of goods and services; and the extent to which their populations are susceptible to augmentation or depletion by migration.

These important points of commonality suggest that, when it comes to benchmarking our economic performance and attempting to plot our future, we should pay as much attention to how we measure up against them as to how we compare with national economies. I believe our understanding and our policy-making would be greatly enriched by this perspective.