tion (PMR) index project has produced indexes of regulatory regimes, in terms of their impact of efficiency and competition (OECD 2006). These include indexes on specific issues like market access for foreign firms, and regulation of pricing and entry conditions, as well as composite indexes. The literature cited above links these measures of regulation to productivity, export performance, and the sector composition of employment.

A stylized representation of a basic lesson to be taken from this literature is presented in Figure 1. This plots two different OECD PMR indexes of regulatory restrictions in services for several OECD countries against an index of absolute productivity in services. The two PMR indicators include an index of policy discrimination against foreign firms, and an index of domestic regulation of prices. These indexes range from 0 to 7, where a low number implies a an open, ”good practice” regime while a high number implies an over-regulated and relatively closed regime. On the horizontal axis, we have plotted estimates of absolute productivity levels for firms in commercial services, relative to the United States.<sup>12</sup> What can be seen in the figure is that openness in services appears to be linked to observed patterns of productivity. Greater openness and better regulation (meaning lower index values) is associated with higher productivity. Given downstream linkages discussed in Section 3.1, such productivity effects should in turn matter for downstream, sectors as well. Francois and Hoekman (2010) survey a number of empirical papers along these lines, investigating the productivity effects of services trade and FDI liberalization. This work provides more evidence that greater availability of services has a significant positive impact on productivity of the sectors that use the services.<sup>13</sup>

# **3.3 Delivery modes and market access channels**

Delivery of services often has an element of ”jointness in production” in the sense – – that complementary inputs including other services are needed to allow effective exchange of (trade in) a service to occur. While this is often also true for – goods various intermediate inputs are needed to produce a unit of final output – jointness in production for services goes beyond this in the sense that often the buyer or consumer is part of the production process. Think for example of management consulting or a doctor’s visit: the quality or value of the transaction will be determined in part by the information that is provided by the client or patient. These complementary inputs can be related to addressing the location or proximity requirements that must be satisfied for many service transactions to be feasible. Where there is a need for proximity in exchange, factors like distance place a cost burden on certain forms of services delivery. Christen and

> 12The figure is taken from Francois, Manchin, and Norberg, 2012. Productivity calculations are based on EU-KLEMS data. In Section 7 we use these data in an illustrative policy experiment. This includes regression analysis of the data in the figure.

> 13Noteworthy contributions include Arnold et al. (2011) and Fernandes and Paunov (2012).

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