IMI CONFERENCE: A Euro standing up to the dollar and a lack of innovation could seriously damage the Republic's capacity to maintain strong growth, a leading US economist has said. Prof Jeffrey Sachs said Ireland ranked 11th on the growth competitiveness index out of 75 countries surveyed but despite being in the upper quartile, the Republic faced problems.

Director of The Centre for International Development at Harvard University and co-author of the Global Competitiveness Report, Mr Sachs was addressing the IMI conference in Killarney.

He said: "A strong euro against the dollar is one of the main things you have to worry about. At the moment the euro is undervalued relative to the dollar. My guess is the euro will strengthen." Ireland's cost advantages had been underpinned by favourable exchange rates, he said, adding that a strengthening euro would put that cost advantage at risk.

"If the exchange rate shifts 15 per cent, it would be very hard to maintain that advantage," he said.

An erosion of cost advantages is of concern because Ireland's growth was built on location and cost rather than on its standard of innovation, said Mr Sachs.

"Ireland is not a highly innovating economy," he said.

"It is an issue of concern for this economy. It raises questions on the ability of the country to achieve good, strong growth in the years ahead."

The Republic ranks 22nd in terms of patents per head of capita, filing 33 patents per million compared with 300 patents per million in the US, according to the Global Competitiveness Report.

Research and development outlay by Government and the private sector lagged other countries, said Mr Sachs. The Republic spent 1.6 per cent of GNP on R&D compared to 2.6 per cent in the US and 3.6 per cent in Sweden.

An outlay of 3-5 per cent should be the target, he said. The numbers of people in the 18-24 year age group entering third level education were still relatively low compared to the US, said Mr Sachs. "Support for higher education has to go up and support for science and technology education has to go up," he said.

He described the take-up of information and communications technology here as mediocre and said the Republic had the lowest rate of interconnectivity for any country in its latitude.

"Ireland ranks very mediocre in terms of the use of the internet. All your Northern European neighbours make much more use of the internet, broadband and technology in schools," he said.

There was a need to invest in the physical and telecoms infrastructure, while keeping public spending and wage inflation under control at the same time.