are statistically significant explanatory variables for the post-1990 economic performance of the transition economies in the sample.

Eschenbach and Hoekman also note that if instead of the services policy indices, measures of the investment climate or governance indicators are used for the countries in the sample, similar results obtain. A possible implication is that the investment climate variables (rule of law, etc.) used in the recent empirical growth and development literature may in part be capturing services-related policies.<sup>41</sup> For example, Dollar and Kraay (2002) find that institutional quality is highly correlated with trade, concluding that institutions and trade both matter for long-run growth; while Rodrik, Subramanian and Trebbi (2004) argue that institutions can promote trade integration, which itself has positive impact on institutional quality. More research to further “unbundle” institutions (Acemoglu and Johnson, 2005) to identify to what extent “institutions” are services-related and correlated with services-related policies could be very fruitful. Given that services policies can be directly influenced by governments, whereas it may be less obvious what can be done in the short run to improve “institutions” or “governance,” greater emphasis on collection of data on services policies could help identify the policy handles that should be targeted by policymakers.

Arnold, Javorcik and Mattoo (2006) analyze the effects of allowing foreign providers greater access to services industries on the productivity of manufacturing industries relying on services inputs. The results, based on firm-level data from the Czech Republic for the period 1998-2003, show a positive relationship between FDI in services and the performance of domestic firms in manufacturing. They conclude that the presence of foreign services providers as the measure of services policy is the most robust services variable affecting TFP in user firms. In related firm-level research focusing on Africa that uses data from over 1,000 firms in 10 subSaharan African economies, Arnold, Mattoo and Narciso (2006) also find a statistically significant positive relationship between firm performance (TFP) and the performance of three service input industries for which data was collected through enterprise surveys (access to communications, electricity and financial services).

Many of the sectoral papers discussed below conclude that policy reforms that increase competition and improve regulatory oversight result in improved performance of the industries concerned. In turn, the productivity of the services sector is important for the long-term growth

> 40 The index focuses primarily on regulatory regimes and access to the markets concerned. The value of the policy indices range from zero to 4.3 and are set at zero for 1989, so that the 2004 value provides a measure of the progress that has been made by countries in converging to “best practice” standards.

> 41 Of course, services policies are part of the investment climate. In the EBRD dataset, however, they are distinct, in that the investment climate variable covers privatization, trade policies for goods, exchange rate policy, competition policy, corporate governance and price liberalization.

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