2015) that improves the previous two approaches for their collinearity problem. A final TFP measure that has lately been developed is from Hsieh and Klenow (2009, 2014). In their methodology the authors follow a structural approach using a Cobb‐Douglas estimate with commonly used labor shares so as to explicitly take into account policy distortions that would otherwise affect traditional TFP measures in their revenue as opposed to physical TFP. In our paper, we use all four TFP proxies so as to compare results.

Moreover, since we are dealing with a cross‐sectional panel dimension we can also employ country‐ consistent indexes of services reform. In this way we could endorse whether reform indexes found in previous research papers are stable with our findings across a like‐minded group of countries with similar level of development as opposed to a single developing or emerging economy. Ideally, the results would be consistent across our four performance measures. The fact that we chose the EU is furthermore interesting since this part of the world has embarked on a great effort to synchronize its differing services sectors across member states into a common market. Over the years, the experience of the EU has proven to be a difficult one, but could nonetheless amount to considerable economic benefits as some studies suggest. Earlier works suggesting significant trade and welfare gains stemming from services reform are mostly done for an individual sector such as Maijoor, Buijink, Meuwissen and van Witteloostuijn (1998) and Cummins and Rubio‐Misas (2006). One likely reason why these studies have taken a sectoral approach lies is the inherent difficulty of finding international comparable performance estimates. Taken from this perspective, a third major contribution that this paper develops is to use sector and country‐specific TFP and regulatory policy measures that use firm‐level data from one common source.<sup>7</sup> The results of this paper suggest that regulatory barriers in services have diverse effects on downstream manufacturing performance depending on the _type_ of regulatory measure in question. Our policy variables are split into pure _entry_ barriers and those that relate to the anti‐competitive policies on the operations of the firm, which we call _conduct_ regulations. At the aggregate level for the economy as a whole, conduct regulations have a most significant negative effect. A second result found in this study is that economic gains arising from reform in services are particularly large, and in some instances larger than previously has been found for individual developing countries. This finding is interesting in itself as services market reforms have been particularly on the minds of policy makers as a tool for development for lower income countries. Our results suggest that at least equally large gains can be reached for developed economies, which are expected to have already better functioning services sectors.

Third, our findings using interaction terms also show that in fact regulatory measures that are restrictive in countries with weaker institutions are relatively more burdensome for downstream firms. One potential explanation is that services are regulation‐intense and sound institutions in the form that strong regulators would be able to put in place a well‐designed set of regulations so as to correct the many market failures from which services suffer. Further interaction results show that firms holding a significant foreign share are particularly hurt by regulations on the conduct of the firm compared to firms which are purely domestic, which points to the fact that although these regulations are in principle applied on a non‐discriminatory basis affecting domestic and foreign firms equally, they nonetheless _de facto_ are more burdensome for international firms. Finally, we also check whether the results are any

> 7 In addition, this paper also uses international comparable reform indexes from the OECD, plus comparable input‐ output linkages that are obtained from Eurostat and are hence developed methodologically in a consistent manner.

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