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contrary, is quite high. Taken together with the results discussed above our results point to a virtuous interaction between technology and trade in services

Human capital also exerts, as expected, an important effect on technology accumulation both in sender countries and in receiving countries, and the point estimates of the two elasticities are very similar. One important implication of this result is that human capital accumulation in any country affects technology accumulation for two reasons. First because it increases the domestic ability to use imported technology, second because it increases the domestic stock of technology that can be exported to other countries.

The impact of technology diffusion also depends on the distance factor. The overall positive impact of diffusion is negatively affected by distance, as expected, and positively effected by time confirming the idea (see e.g. Keller 2002) that distance should not be considered a geographical factor but an economic factor whose impact decreases over time thanks to a decrease in the cost of transferring technology and information across space. Finally, and not surprisingly, the adjustments speed is low while highly significant.

IV. Policy Implications

Over the last few years a number of empirical studies, also in the wake of the launching and the reassessment of the Lisbon strategy (see Rodrigues 2004, Kok 2004) have investigated the gains in terms of output that can be obtained in Europe by deregulation, liberalization, as well higher knowledge accumulation.

Guiso, et al (2004) have assessed the growth gains for EU countries that would be obtained if EU financial markets were to reach a degree of “optimal” integration, as represented by the US financial market benchmark. They also consider a “suboptimal” case were the benchmark is represented by a degree of EU financial integration matching that of UK, the Netherlands, and Sweden. The IMF has presented, in the September 2002 edition of the World Economic Outlook (WEO 2002), simulation results of the impact of product market liberalization and increased labor market flexibility on EU output levels. Bayoumi, Laxton and Pesenti (2004) have computed the output gains deriving from extensive deregulation in European product markets. The gains amount to as much as a 7% increase in GDP and a 3% productivity increase. The European Commission (2003) has carried out a number of policy simulations of the gains from the implementation of measures included in the Lisbon strategy. Interestingly this analysis shows that deregulation alone (i.e. bringing the level of EU product market regulation down to the US level) would not be enough to fill the gap with the US in terms of per capita GDP. To reach this target Europe would have to increase spending in R&D, education, and ICT. The combination of these measures could increase the potential growth rate by 0.5-0.75 per year over a period of 5 to 10 years.

The analysis we have developed in this paper in the previous paragraphs carries several policy implications along similar lines to the studies mentioned above and it provides support to the general ideas on which the Lisbon strategy has been set up. In our model growth is positively

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