A higher level of human capital, both in the receiving or in the sending country--cases e1 and e2--exerts an initially limited but increasing impact on output growth through the effect on technology accumulation. It is interesting to note that this effect is increasing but significantly higher when combined with a larger amount of ICT spending (case f).
If we consider the impact on services we note that all measures determine a output higher rate of growth, with respect to baseline, of both domestic and imported services. The largest impact is obtained through deeper integration in service markets (case b). A significant impact is also obtained in cases a) and c), the elimination of the impact of regulation and the increase in ICT spending. A much smaller impact is obtained in cases d) and e), lower diffusion costs and higher human capital availability. This last result is not surprising as these two cases exert a stronger impact on technology accumulation than on services. Interestingly, in all cases considered the impact is stronger on imported rather than on domestic production of business services, suggesting that the policy actions we consider might increase integration and hence trade in services.
Finally, we consider the impact on technology. In all cases the level of the stock of technology is higher with respect to baseline when the stock of human capital both in sending and receiving countries is increased. This last effect sheds some additional light on the interaction between technology accumulation and growth. The ultimate driver of growth is technology accumulation and the latter is strongly supported by human capital accumulation. However, for such a mechanism to produce significant effects a rather lengthy transmission mechanism is needed so that it is fair to say that this is a long term process. In the medium term growth is more effectively supported through a stronger diffusion of existing technology and a stronger contribution of services to the process.
In conclusion, our results show that EU output growth can be significantly increased if the availability of business services and the accumulation of knowledge are enhanced. These results, in turn, can be obtained through an improved regulatory environment, through deeper integration in service markets, and a stronger impact of technology diffusion. Higher ICT investment and, especially, higher availability of human capital are instrumental to such a strategy. Our results show that this three pronged strategy--deregulation, deeper integration, and more effective technology diffusion--determines a virtuous circle of output growth, provision of services, and knowledge accumulation in line with the objectives of the Lisbon Agenda. Our results also show that these strategies require different time horizons to be effective. In the long run growth is best supported through stronger technology accumulation, itself supported by larger availability of human capital. In the medium term a better regulatory environment, more ICT investment and a larger availability of business services can provide a stronger boost to growth.