Most Irish firms are seeing their productivity shrink, the National Competitiveness Council has warned.
The council said good productivity performances from a small number of big companies, working in largely foreign-dominated sectors, is masking the underperformance of smaller companies which account for most of the employment in the State.
It said the gap threatens smaller firms' competitiveness and means that "the large engine powered by a small number of multinational corporations will have to do more of the work to sustain the economy in the future," adding there was a lack of technology spillover from the multinationals to indigenous firms.
"Fixing this is not easy - the National Competitiveness Council's view is that a major effort is required to help indigenous firms to invest in innovation, obtain the necessary management talent and in-company training and ultimately grow and diversify into new markets," the council said.
"Foreign direct investment will continue to play a key role in Ireland's future.
"While we should not switch attention away from the attraction, support and development of multinational operations in Ireland - which are a critical pillar of the Irish economy - the focus should be on the continued diversification of the FDI base of industries and, equally important, further embedding their activities in the rest of the Irish economy."