of the relevance of services sectors beyond the boundaries of the sectors themselves. As the ILO World Employment Report 2004-05 states, “bridging the global productivity divide is essential for fighting poverty and stimulating growth in both output and decent and productive employment”. Productivity is a necessary condition for creating incomes that allow people to escape from poverty. This paper strengthens the argument that reforming services industries can contribute to enhancing the productivity of downstream economic activities, and thus be an essential element of a strategy for promoting growth and reducing poverty.

# **2. Related Literature**

There is a growing body of evidence of the relevance of services sectors for growth and productivity. At the aggregate level, Eschenbach and Hoekman (2006) document a positive correlation between the extent of services liberalization and economic growth in transition countries during the 1990-2004 period. Mattoo, Rathindran and Subramanian (2006) present econometric evidence from a sample of 60 countries over the 1990-1999 period that openness in the financial and telecommunications sectors influences long-run growth performance. At the micro level, Arnold, Javorcik and Mattoo (2006) provide evidence for a positive link between services liberalization and downstream manufacturing performance for the case of the Czech Republic.<sup>1</sup> To the best of our knowledge, the role of services inputs in Sub-Saharan Africa has not yet been analyzed rigorously in the literature. Most of the literature on the performance of production establishments in the region has focused on the relationship between export status and performance (Van Biesebroek 2005, Bigsten et. al. 2004, Mengistae and Patillo 2004). Clarke (2005) investigates the relationship between policy variables and the export performance of African firms, and finds that restrictive trade and customs regulations appear to discourage exporting.

Tybout (2000) reviews the performance of manufacturing firms in developing countries and identifies the following reasons for the poor performance of many developing-country establishments compared to global best practice: a lack of market size (which may be aggravated by insufficient transport services), a lack of human capital, and difficulties in accessing manufactured inputs and infrastructure services at competitive prices and quality. The objective of this paper is to assess the significance of the last variable, access to infrastructure services.

Finally, as noted above, Eifert et al. (2005) analyze the share of “indirect” costs for firms in 42 countries. Most of these indirect costs are attributable to services-related inputs into production - energy, transport, telecom, water, insurance, marketing, travel, independent professionals and accounting. They find that in countries such as China, India, Nicaragua, Bangladesh and Morocco, indirect costs account for 13-15 percent of total costs, around half the level of labor

> 1 A related literature considers the importance of services reform for goods trade. Fink, Mattoo and Neagu (2005) show that communication costs matter for export performance for certain goods, and Freund and Weinhold (2002) find a trade-enhancing effect of internet connectivity.

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