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Dynamic effects of European servicesliberalisation: more to be gained

25/09/2006
Single Market
Europe?s market for services is fragmented by many regulatory barriers. TheServices directive proposed by the European Commission aims to integratenational services markets by reducing these barriers. Several studies indicatethat bilateral trade and foreign direct investment in services could boostsubstantially. GDP and consumption could increase by 0.5% to about 1% onaverage in Europe. The effects for the Member States vary depending on thesize of the barriers in their services markets and specialization. These resultstake account of scale effects, and forward and backward linkages in theeconomy, but ignore the effects of more competition on productivity andinnovation in the long term. This paper assesses the channels though which anintegrated European services market may generate these dynamic gains.Improved market access will stimulate competitive selection and productivitygrowth. Through trade and investment, knowledge spillovers will increase andinnovation will be fostered. These channels are illustrated with scarcequantitative evidence.