Ireland's record on inward investment in recent years has been the envy of many, particularly our European neighbours who cast resentful glances in our direction every time IDA Ireland announces another thousand-job triumph.

However, the division of the State into two regions for funding purposes has raised fears of internecine feuding as parts of the east and south start to resent what are becoming known as the BMW counties.

BMW refers not to the ubiquity of the famous marque of car in these counties, but rather to the Border, midlands and west, the areas which have retained Objective 1 status for the next seven years under European Union funding rules. This also allows the IDA to offer grant aid of up to 40 per cent to companies locating in the region compared with a maximum of 20 per cent for firms who plump for the southern or eastern parts of the State.

As a result, counties like Donegal, Sligo and Leitrim will now be able to offer more attractive incentives to firms prepared to locate in the northwest than those available to companies locating in Dublin, Cork or Limerick, for example.

Most people recognise the justice of this - the major cities have advantages of population and infrastructure that cannot be matched by more rural areas.

However, there are parts of the 13 counties of the south and east which are now classified as being in transition from Objective 1 status which are as much in need of development as much of the west.

Areas in Carlow, Kilkenny, Waterford and Wexford - not to mention Kerry and Clare which were originally included in the region earmarked for special treatment - are as deserving as Galway or Mayo in the minds of many.

To what extent these counties, described by one commentator as "the west of the new east" will suffer under the new regime remains uncertain.

"It could effect a new periphery," says one observer of industrial policy. "Companies getting a higher grant rate in Mullingar might be more inclined to go there than to go to Carlow."

However, many people believe that the impact of the new regionalisation policy in terms of foreign direct investment will not be all that momentous, particularly as grant aid is rarely the main motivating force for a company to locate in a particular region.

IDA Ireland confirms that its client surveys typically show that such incentives rank well below issues such as the availability of skills, cost structures, access and infrastructure and taxation in terms of their importance to multinational companies considering where to locate.

Increasingly, multinationals are also considering what other companies are based here or the attractiveness of a particular location to the non-nationals they may need to hire when weighing up their decision on whether or not to move to Ireland.

Observers also point out that the position of the west has not improved in absolute terms, only relative to the rest of the State.

"The overall level of interest in Ireland won't increase, and may even be marginally reduced. Meanwhile, whatever stopped people going into Sligo or Donegal is still there," one source says.

Developing the infrastructure of such counties will remain imperative if the IDA is to succeed in selling the county to would-be investors.

"If we put serious effort into infrastructure development in places like Sligo, it is one more useful piece in our armoury. But of itself, the grant aid is not going to help solve the problems of the west," the same source adds.

Aside from the fact that grant aid is not the only - let alone the crucial issue - in attracting investors, the IDA also points out that a regional focus is nothing new for the organisation. Since 1997, it has been offering double the level of grant aid to firms locating in less developed regions and in many ways, the EU status is just a copper fastening of existing policy.

Grant aid is also a more complex area than it at first appears. It is very rare for the agency to provide the maximum amount of funding for any firms. Had it done so to encourage Intel to locate in Leixlip, Co Kildare, for example, it would have ended up paying £1 billion for the privilege.

IDA spokesman Mr Colm Donlon says that although the agency can technically offer higher grants across the whole BMW area, it will in reality target areas requiring development, particularly the northwest, the Border counties and the midlands. Areas such as Galway city, already well developed and even suffering from a degree of congestion, are unlikely to come in for incentives as generous as those going to areas which have been neglected like Westmeath.

There is also a commercial imperative behind the grants provided. Although the agency is coy about how it calculates incentives, it takes into account issues such as the economic impact of a company, its value to the Exchequer and how long it will take the State to recoup its investment.

Other factors it considers are the number and type of jobs created, the amount people are paid, the spin-off impact on employment and spending in the region, the impact on sourcing, supplies and services and even the effect on unemployment and the Government's Social Welfare Bill. The model used for calculating grant aid, which was independently worked out by the Economic and Social Research Institute (ESRI) and is managed by Forfas, is never breached.

But if the IDA is reluctant to reveal the model, it is prepared to say that it spent an average of £11,460 to sustain each job created over the period from 1991 to 1998. However, the average figure disguises wildly varying supports for different sectors.

The US pharmaceuticals giant Pfizer, for instance, got no grant aid to accompany the millions it spent to allow it to produce Viagra at its Irish facility. Generally, the IDA relies on Ireland's favourable tax regime and the availability of skilled employees to attract highly profitable pharmaceutical firms to Ireland. By contrast, it can pay up to £25,000 per job to attract strategic projects in target areas such as information technology.

But at the end of the day, attracting investment is no longer just about putting money on the table. Instead, the emphasis is on skills, infrastructure and matching areas to businesses - and the new regional policy is unlikely to fundamentally alter this.

"We gave up the Dutch auction business years ago. The policy simply became crazy with some firms being offered over £250,000 per job to locate," Mr Donlon says. "Instead, we concentrate on value for money."