is also very high as a ratio of GDP in the Baltic States. It is lowest in Romania, Russia and the Ukraine.

**Table 3: Inward FDI stock by sector, (end 2003 unless indicated otherwise; shares in total (%))**

||CZ|HU|PL|SK|SI|EE|LV|LT|BG|CR|RO|RU<br>flow|UK|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Sector|2002|2002|2002||2002|||||||00-02|2002|
|Agriculture, forestry, fishing|0.1|1.3|0.4|0.2|0.0|0.4|1.5|0.8|0.3|0.3|0.7|0.4|2.1|
|Mining and quarrying|1.4|0.3|0.3|0.8|0.0|0.4|0.6|0.8|1.1|3.1|||2.4|
|Manufacturing|35.5|45.8|35.8|37.5|43.3|18.2|15.5|31.1|33.4|30.6|54.3|45**|46.4|
|Electricity, gas, water supply|6.9|4.6|2.6|11.7|1.0|2.4|3.4|4.4|1.0|1.1|||1.6|
|Construction|1.9|1.1|2.6|0.7|0.1|2.5|1.0|1.2|2.7|0.9|2.4|2.2|2.9|
|Distribution and repair services|11.9|11.1|17.1|11.2|14.5|15.9|18.0|17.9|18.0|6.9|16.4|22***|18.5|
|Hotels and restaurants|1.2|1.1|0.6|0.5|0.4|1.7|1.3|1.6|1.7|4.0|2.4||2.3|
|Transport, storage & comm.|13.6|10.1|10.4|10.0|4.4|17.7|11.9|17.1|15.7|25.0|7.8|9.5|7.2|
|Financial intermediation|15.9|10.3|21.3|23.5|18.8|28.1|15.0|15.7|17.7|24.6||1.8|8.1|
|Real estate, rental & business act.|9.3|11.7|7.5|3.2|15.2|11.4|24.5|7.3|3.9|3.1||8.2|4.7|
|Education, health, social work|0.2|.|.|0.4.|0.1|0.1|0.1|0.2.|0.3|0.0.|||2.3|
|Other community& personal ser.|2.4|.|.|0.3|0.5|0.8|1.1|1.5|0.8|0.5||0.2|1.5|
|Other not classified activities|0.0|1.0|1.4|.|1.7|0.4|6.0|0.3|3.2|..|16*|11.0||
|Real estate purchases by foreigners|.|1.5|.|.|.|.|.|.||..||||
|Total services share ****|_56.2_|_47.9_|_60.9 _|_49.8 _|_55.7_|_78.6_|_78.9_|_62.8_|_65.2_|_64.9_|_45_|_54.6_|_47.5_|
|Value of services FDI stock ($ bn)|26.7|22.9|36.8|5.6|2.8|5.1|2.6|3.1|3.3|7.4|5.7|35.5|3.6|
|Services FDI stock as % of GDP|31.6|27.7|17.6|17.6|7.7|60.7|26.8|37.8|16.6|26.1|9.4|8.2|7.3|
|Notes: NMS: New EU Member State<br>mining/energy;*** Includes hotel<br>_Source_: wiiw-wifo Database on F|s; * In<br>s and r<br>DI, Ju|cludes<br>estaur<br>ly 200|financ<br>ants;<br>4 edit|e and<br>****<br>ion.|busine<br>Not i|ss servi<br>ncludin|ces. **<br>g utili|Cover<br>ties.|s all in|dustry,|inclu|ding||

The forgoing snapshot of trends in the share of services in GDP, employment, output per worker, trade and FDI reveal both substantial convergence towards European countries, but also a distinct difference between Central European/Baltic states and Central Asian and CIS economies. Given that trade and FDI in services can be expected to be associated with the acquisition of new technologies, higher service standards and more effective delivery, these differences should help explain the observed higher labor productivity performance in services in the former. The question explored in the rest of this paper is whether these services developments are determinants of the aggregate growth performance of countries. The services outcome variables are of course endogenous, influenced by the policy stances of governments, so that the focus is on the impact of services policy reforms.

# **2. Policy Stances and Service Sector Reforms**

Service sector reform involves a mix of deregulation (the dismantlement of barriers to entry and promotion of competition) and improved regulation (putting in place an appropriate legal 6