Structure and performance of the service sector in transition economies1

This paper examines the performance of the service sector in the Eastern European transition economies during the 1997–2004 period. The performance of the service sector as a whole and of its sub‐sectors is very heterogeneous within the region. Service sub‐sectors that are information and communications technology producers or users and those using skilled labour more intensively exhibit the highest labour productivity growth. Our estimates show a positive and significant effect of liberalization on service labour productivity growth that is stronger for sub‐sectors that are more distant from the technological frontier. Service liberalization is also shown to have a positive effect on labour productivity levels and growth of downstream manufacturing industries.