municipal government or agency is made based on the shareholder name and description in the Amadeus data base. As in the case of foreign ownership, we employ both a threshold and a capital share definition.

The level of competition in each services industry is proxied by two indices of concentration: the market share of the four largest providers and the Herfindahl index which is defined as the sum of squared market shares of all providers in the sector. As our results show no qualitative difference between the findings based on the two indices, we present the estimation results only for the former index.

Since we are interested in inter-sectoral linkages between services and manufacturing industries, we need to weigh the extent of liberalization in each services sector by the reliance of manufacturing firms on each services input. While we do not have information on services inputs at the level of individual firms, we can use information from a national input-output matrix to evaluate inter-industry dependencies between individual manufacturing and services sectors.<sup>20</sup> An advantage of using the industry level information is that there is less need to be concerned about a correlation between the performance of an individual firm and its services usage. Based on the information on the relative importance of each services sector for manufacturing industries, we calculate the following measures for each manufacturing industry _j_ at time _t_ : where _ajk_ is the amount of inputs sourced from services sector _k_ , expressed as a fraction of the overall inputs used by manufacturing sector _j. Liberalization_indexkt_ is one of the six measures discussed above: the EBRD index of reform in services sector _k_ at time _t_ , _foreign sharekt_ defined based on capital shares or thresholds for services sector _k_ at time _t_ , the share of output provided by private companies in services sector _k_ at time _t_ (defined based on capital shares or thresholds) or the concentration index for services sector _k_ at time _t_ . Put differently, the _services_linkage_ variable is obtained by multiplying the matrix of sectoral reform indicators for services sectors with a matrix of input-output coefficients.<sup>21</sup> To establish whether there exists a link between the performance of Czech firms and liberalization of upstream services sectors, we regress the productivity of manufacturing firms on the _services_linkage_ measures: where _TFPit_ is the total factor productivity of a Czech manufacturing firm _i_ operating at time _t_ estimated at the industry level using alternatively ordinary least squares or the semiparametric Olley and Pakes method and _Xjt-1_ is a vector of controls for other aspects of the increasing integration of the Czech economy with the outside world. As the effects of services liberalization and other aspects of international integration may take time to materialize, these variables are lagged one period.

There are two advantages of using firm-level rather than industry-level data. First, we can include firm fixed effects ( _Di_ ) to capture unobserved firm heterogeneity related to firm location, size, the subindustry of operation, manager’s characteristics, age, etc. Second, firm-level data allow us to isolate the effect on domestic firms, which is the policy outcome likely to be of highest interest to national policy makers. For this reason, only firms in manufacturing sectors (NACE Codes 15 to 36) that have less than 10% of foreign ownership at all times are considered in the regressions.<sup>22</sup> The vector _Xjt-1_ controls for other aspects of openness not related to services liberalization. In particular, it includes a sector-specific measure of foreign presence in upstream manufacturing sectors, constructed in

> 20 We employ the use table of the input-output matrix for the year 2000, obtained from the CSO. Ideally, we would want to have annual information, but unfortunately it is not available. Note, however, that the year 2000 lies approximately in the middle of the time period covered by our sample.

> 21 This way of measuring cross-sector effects was used by, for instance, Javorcik (2004).

> 22 Note that including foreign firms in the sample leads to very similar results. It could be of interest whether foreign manufacturers located in the Czech Republic benefit more or less from services reform than Czech manufacturers. But rigorously examining the effect on foreign firms would require dealing with the possible endogeneity of foreign ownership which is beyond the scope of this paper.

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