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Results for Eq. (2) and (3) can best be considered jointly as the two equations have the same structure and the estimated values for the corresponding parameters are also very similar. Both domestic and imported services are positively correlated with output and with technology accumulation. However, while the output elasticities are not significantly different from one another, technology accumulation does affect imported services more than domestic service production. This result highlights the importance of trade services integration in European technology accumulation and hence on growth, an outcome that is confirmed by further results below.

The impact of EU integration is confirmed by the estimation results of the parameters associated with beu and ceu. To assess the impact of national characteristics we introduced country dummies all of which turned out to be insignificant. We then tried with a number of country aggregations; parameters beu and ceu reflect the impact on service production and trade of a group of countries11 that, in addition to unobservable characteristics, share the lowest intensity of regulation as measured by the OECD indicators. The positive and significant value of these parameters signals that higher service production and trade in this group of countries may be associated with the positive impact of low regulatory barriers as well as of regulatory harmonization in the EU but also to a relatively low level of other unobservable impediments to production and trade of services also possibly associated with a deeper level of integration.

The impact of national levels of regulation is captured by the parameters associated with REG in both equations. The estimated parameters are both significant and negative as well as not significantly different from one another. These results indicate that higher levels of regulation have a negative impact on production and trade of services. The structure of manufacturing and service sector specialization exerts a significant impact (also of similar magnitude) on both domestic and imported services, thus confirming the results obtained in Guerrieri and Meliciani (2004). ICT investment also has a positive and significant impact on both service variables. Both adjustment speeds are low and significant, however the adjustment speed for domestic services is lower than the output adjustment speed while the adjustment speed for imported services is higher suggesting that trade integration in the service sector proceed at a somewhat faster pace.

Let us, finally, discuss the results of the technology equation (eq. 4). Technology accumulation in each country depends both on domestic accumulation factors and on the diffusion of technology between countries. This, in turn, depends on the intensity of technology accumulation in other countries, on the impact of “distance” between countries, as well as on the ability of receiving countries to use imported technology. Our results help clarify the contribution of each of these factors. Technology accumulation is positively correlated with output and with domestic services, although the estimated value of the elasticity of this latter variable is relatively low. The elasticity of technology with respect to imported services, on the


The countries are Austria, Denmark, Germany, Netherlands, Sweden.

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