regulations. In the same way, Hungary shows a similar level of low restrictions compared to Ireland and Denmark. Moreover, Figure 1 also points out that between 2006 and 2013, some countries actually moved away from the diagonal axis to a greater extent than others. This means that several countries decreased their level of services regulations such as Greece, Slovenia or Italy, while others reformed their services markets at a much lower pace such as in the case of Finland or Luxembourg which has actually increased its level or services regulations somewhat.<sup>1</sup> Naturally, this should have an effect on how these countries have overall performed in terms of productivity over time.

The link between services reforms and economy‐wide productivity effects has gained increasing attention from researchers and has been a focal point in various previous studies. Earlier papers such as Nielson and Taglioni (2003) highlight the fact that services trade liberalization and regulatory reform are likely to lead to larger gains from increasing efficiency and competitiveness rather than increased market access abroad. In another study, based on using a general equilibrium model, Robinson _et al._ (2002) come to similar conclusions in that services liberalization has a large indirect effect (next to a direct effect) on downstream sectors using services as inputs. They state that notably for developing countries TFP would rise in sectors using services as efficiency gains run through upstream to downstream inter‐ industry linkages. Triplett and Bosworth (2004) investigate this issue by focusing on the role of TFP in services sectors themselves and conclude that in particular greater productivity in the distribution sector as well as the financial services sector has helped to a significant extent the US productivity surge after 1995.

This study is closely related to the more recent works that empirically investigate the role of services reforms on downstream or economy‐wide productivity performance, in particular those that use firm‐ level data.<sup>2</sup> Several studies stand out in this regard. One is by Arnold _et al_ . (2011) that shows how increased foreign participation of firms in services sectors caused an improvement in downstream manufacturing sectors in the Czech Republic. In this paper the authors use economy‐wide indexes of services reform employing the EBRD data base on services policy reform and interact those with a services input reliance coefficient using Czech input‐output tables. Another study is done by Arnold _et al_ . (2015) in which the authors undertake a similar empirical strategy but then for India by means of a comparable approach which is comprised of interacting a self‐constructed reform index for India with a comparable services input dependency ratio for the Indian economy. They also show that for India reform in services has had a positive impact on downstream manufacturing firms. In addition, this study also exploits sector‐specific indexes as opposed to only an economy‐wide index of services reform.

Two separate studies associated with quantifying services linkages on downstream manufacturing productivity focus solely on the role of Foreign Direct Investment (FDI).<sup>3</sup> Fernandes and Paunov (2012) 1 Figure 1 shows the level of regulation of EU countries using the OECD NMR regulations database for the year 2006 and 2013, which is the timeframe of our empirical analysis and is interpolated for missing series. Note that other indexes of restrictiveness in services are on a one‐year basis only such as the OECD’s Services Trade Restrictiveness Index (STRI) which to date has only collected data for 2014 and the World Bank’s STRI that extends to developing countries for the year 2009 alone.

2 Some earlier studies that analyze the effects of services reform on economy‐wide performance without using firm‐level data are Mattoo _et al_ . (2006) and Eschenbach and Hoekman (2006). The former relates services reform to economic growth effects while the latter concentrates on services reform, including liberalization, on economic performance in a sample of 20 transition economies using EBRD reform indexes.

> 3 Note, however, that Arnold _et al_ . (2011) also use FDI as one of the explanatory linkage variables using the share of the presence of foreign providers of services next to their EBRD measure of services liberalization.

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