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onomic performance of transition economies. These ?ndings suggest services policies should be considered more generally in empirical analyses of economic growth. 1. Introduction One of the stylized facts of economic development is that the share of services in GDP and employment rises as per capita ines increase (Francois and Reinert 1996). This re?ects increasing specialization and exchange of services through the market 2 (―outsourcing‖)—with an associated increase in variety and quality that may raise productivity of ?rms and welfare of ?nal consumers, in turn increasing demand for services. It also re?ects the limited scope for (labor) productivity in provision of some services, implying that over time the (real) costs of these services will rise relative to merchandize, as will their share of employment (Baumol 1967。 Fuchs 1968).Services are increasingly being tradable as a result of the greater mobility of people and technological change. This further increases the scope for specialization in production and trade. The petitiveness of ?rms both domestic enterprises operating on the local market and exporters on international markets—depends importantly on the availability, cost, and quality of producer services such as ?nance, transport, and telemunicates ations. Services industries were generally neglected under central planni thinking emphasized the importance of tangible (material) inputs as determinants of economic development, and classi?ed employment in the services sector as unproductive. The lack of producer services was re?ected in transport bottlenecks, queuing for and low quality of telemunications, the absence of ef?cient ?nancial intermediation, and muchlower employment in services than was the case in OECD countries (less than 1 percent of the labor force was employed in ?nance and insurance). Many of the services that are critical to the functioning of a market economy simply did not exist—not just a ?nancial sector that could allocate investment funds ef?ciently, but also design, advertising, packaging, distribution, logistics, management, after sales services, etc. 2. Shifts in the Structure of Services in Transition Economies The share of services in GDP and employment has grown signi?cantly since 1990 in almost all transition economies. Compared to the high ine OECD average in 1990 when the share of services in employment and GDP was around 63 percent transition countries in Europe and Central Asia (ECA) lagged far behind: services accounted for 30–40 percent of GDP and employment. As of 2020, services shares had increased substantially. The greatest growth is observed in the Baltic States, which have almost converged on th