foreign direct investment, preferential trade agreements, gravity model 1 | INTRODUCTION We estimate the potential impact of preferential trade agreements (PTAs)-and other bilateral policies that affect trade and investment-on the bilateral FDI stocks and flows between the countries signing these agreements. Our key results are based on a structural gravity model of FDI that is applied to bilateral FDI data from UNCTAD (2014), while controlling for the presence, heterogeneity and depth of preferential trade agreements (PTAs), and other time-varying bilateral policies. Starting in the 1990s, the world economy has experienced a large increase in the number of PTAs, and also in their 'depth'-measured by the number of their operative provisions. 1 While stimulating bilateral trade is the main focus of most PTAs, recent preferential trade agreements increasingly contain provisions on bilateral investment between member states. However, the impact of PTAs on the magnitude of foreign direct investments is not straightforward. Trade and FDI can either complement or substitute each other, depending on the investment motivation (i.e., horizontal and vertical), the specific industry and on the way in which the FDI provisions are shaped in the PTA. From a theoretical point of view, horizontal FDI-where firms replicate domestic activities in a foreign country-is associated with FDI substituting for trade. Thus, in the presence of horizontal FDI, PTAs are expected to decrease FDI flows. On the other hand, vertical FDI-where firms split activities between different geographical regions-creates a complementary relationship between trade, PTAs and FDI (cf. Markusen, 2002). More recently, and, in part, due to the expansion and complexity of global value chains (GVCs), other motives for FDI have been identified. For instance, export-platform FDI where MNEs produce to export to third markets (Ekholm, Forslid, & Markusen, 2007; Hanson, Mataloni, & Slaughter, 2005). Yeaple (2003) classifies mixed FDI motives as 'complex FDI'. Baldwin and Okubo 1 + jit 1 + ijt .

Résumé L’hétérogénéité des politiques menées à l’échelle internationale crée des coûts additionnels pour les firmes de services réalisant des échanges ou des investissements dans d’autres pays. Les fournisseurs de services doivent en effet se conformer à divers types de règles sur chaque marché où ils opèrent. Ces réglementations engendrent des coûts fixes d’entrée, spécifiques à chaque marché à l’export. Dans ce cadre, nous développons un nouvel indicateur d’hétérogénéité bilatérale afin de l’utiliser comme proxy dans l’évaluation de ces coûts. Nous tentons ainsi d’expliquer le commerce bilatéral de services et les ide dans le secteur des services en utilisant un modèle de gravité intégrant cet indicateur. Nous dégageons un impact négatif, hautement significatif, de ces coûts d’hétérogénéité sur ce type de commerce et d’ ide . Ces estimations sont ensuite utilisées pour évaluer l’impact potentiel de la Directive sur les services proposée en 2004 par la Commission. Plusieurs volets de cette Directive pourraient effectivement réduire les coûts d’entrée pour les fournisseurs de services. Dans nos projections, cette Directive sur les services pourrait ainsi accroître le commerce de services intra-européen de 30 à 62%, et l’investissement direct dans les services de 18 à 36%. JEL Classification: F13, F15, F17, F23, L5, L8

The sector business services contributes directly and indirectly to aggregate economic growth in Europe. The direct contribution comes from the sector's own dynamism. Though the business-services industry appears to be characterised by strong cyclical volatility, there was also a strong structural growth. Business services actually generated more than half of total net employment growth in the European Union since the second half of the 1990s. Apart from this direct growth contribution, the sector also contributed in an indirect way to economic growth by generating knowledge and productivity spill-overs for other industries. The knowledge role of business services is reflected in its employment characteristics. The business-services industry created spill-overs in three ways: original innovations, knowledge diffusion, and the reduction of human capital indivisibilities at firm level. The share of knowledge-intensive business services in the intermediate inputs of the total economy has risen sharply in the last decade. Firm-level scale diseconomies with regard to knowledge and skill inputs are reduced by external deliveries of such inputs, thereby exploiting positive external scale economies. The process goes along with an increasingly complex social division of labour between economic sectors. The European business-services industry itself is characterised by a relatively weak productivity growth. Does this contribute to growth stagnation tendencies à la the socalled "Baumol disease"? The paper argues that there is no reason to expect this as long as the productivity and growth spill-overs from business services to other sectors are large enough. Finally, the paper concludes by suggesting several policy elements that could boost the role of business services in European economic growth. This might to achieve some of the ambitious Lisbon goals with respect to employment, productivity and innovation.

This study presents recently available data on the microstructure of Dutch exports and the relation between export participation and productivity at the …rm and establishment-level. We test whether recent theories of international trade with heterogeneous …rms can explain the patterns in the Dutch data. We …nd signi…cant evidence that …rms self-select into export participation, even after controlling for sector and …rm-speci…c characteristics. In general, only the most productive Dutch …rms participate in exports and foreign direct investment. In addition, we do not …nd evidence for the learning-by-exporting hypothesis, even when controlling for the …rm's distance to the international productivity frontier.

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