Overseas investment by Irish firms leads to increased domestic employment numbers and higher-skilled employees, a new report commissioned by Government policy adviser Forfás has concluded.

The agency's updated statement found that manufacturing is the most common activity undertaken by overseas subsidiaries of Irish firms, followed by business services and construction.

The value of overseas investments by Irish firms has exceeded inward investment by foreign companies since 2004.

There was rapid growth in investment in foreign countries by Irish firms between 2000 and 2005, when it grew by 325 per cent.

UN figures show that Irish overseas direct investment was valued at $117.9 billion (€81.2 billion) in 2005.

"Overseas direct investment (ODI) is a logical and inevitable stage in the international expansion of companies, driven by competitive forces and customer demands," said Martin Cronin, chief executive of Forfás.

"The experience of internationalisation to date has been largely positive for Ireland, with a positive impact on the productivity, skills profile and employment levels within investing firms," he said.

Mr Cronin pointed out, however, that ODI can have a negative impact on low-skilled workers, particularly in the regions.

The research, conducted by Copenhagen Economics ApS, found that the most positive result of foreign investment is that it creates higher-value jobs and is complementary to new investment in Ireland.

It found the biggest negative impact of the trend is that lower value jobs are typically lost in Ireland and the possibility of moving jobs offshore may make staff feel insecure.

The vast majority (58 per cent) of Irish foreign investment is directed to western Europe and the UK in particular.

Eastern Europe is the next highest foreign investment location, with 15 per cent.

Relatively little investment is directed at the developed and developing Asian economies, which attract just 9 per cent.