services. This means that as they diversify into new products may, they require more support from services. Participation in global value chains is closely associated with development of new services and investment opportunities.

Services as final export activities are under‐developed; in terms of export diversification, they offer an untapped opportunity. This is illustrated by the relatively low share of services in total exports compared to what would be expected given Russia’s level of development. Exports of traditional services, such as transport and travel, are performing well, but not modern services, even though in global trade modern services have in recent years had the most dynamic growth rates. Examples of modern services are communications, banking, insurance, business‐related services, remote access services, transcribing medical records, call centers, and some educational services.

Although direct services exports are low, services make a considerable indirect contribution to the economy as inputs to other export activities; clearly, services linkages to other economic activities are significant. When trade is measured in terms of value added (excluding foreign and national inputs), the contribution of Russian services to total exports is 8.5 percent, so that the share of services exports for final consumption is low. However, the share of services in total exports goes up significantly when the contribution of services to other economic activities is considered, at which point services constitute 32.6 percent of total exports. This is explained by the role of services in exports of energy, which represent half of the total contribution of services to total exports (16.3 percent).

There are also potential new markets that Russia could explore, from Europe to Latin America and the Asia Pacific Region. Russia’s presence in such developed countries as Japan and France is relatively small. And, although trade complementarity with Germany is rising, Russia’s services trade with Germany is not as intense as that of all the other countries that export to Germany.

There is also scope for developing services across regions as well as for engaging in more services activities. Services are concentrated in the central regions, but the propensity of firms to export is highest in the Far East region (4.5) and smallest in the North Caucasus region (1.6). Average export revenue per region is only about 3 percent of the total revenue of firms, and most regions have export revenue from only a few services sectors, mainly transportation and professional services. Outside the Central region, regions like the Far East or the North Caucasus are very much dependent on just a few sectors for export revenue.

Building up Russia’s services exports will depend to a large extent on supply‐side policies. In terms of services trade policies—those that limit or discriminate against foreign providers—Russia’s regime is relatively open and will become even more so as the services commitments adopted on accession to the WTO come into effect. Despite these efforts, there is also scope for additional liberalization of certain investment measures in the services sectors. For examples, the OECD FDI Regulatory Restrictiveness Index shows that many services activities maintain still important levels of restrictiveness compared to other OECD countries. This may benefit the emergence of new and efficient service activities by increasing competition and imports of services as well supporting current and new exports. This will also affect the enabling factors that have great influence on services: institutions, governance, the rule of law, infrastructure supportive of services, and human capital.

In investigating what affects Russia’s services performance, Russia was found to still have relatively onerous restrictions in some services sectors. Moreover, Jensen, Rutherford and Tarr (2004) estimate 21