The primary objective of this research project is to produce a comprehensive study on the impact of market services on aggregate economic growth in the EU and its comparative performance relative to competitor regions, especially the US. The research is divided into three areas: Productivity and its drivers in service industries; Firm strategies in the knowledge-based economy and Internationalisation of service markets and growth. In the first area the project will explore the impact of intangible assets such as R&D and firm- specific training in explaining the EU’s poor performance relative to the US. It will also examine interactions between information and communications technology and intangible investments to gauge to what extent these are complementary strategies to enhance productivity and growth. This area will also contain a detailed investigation of linkages between service sectors and manufacturing through trade in intermediate inputs, and the effect of the competitive and regulatory environment of service industries on growth in the EU. Area 2 on the knowledge based economy will investigate external sources of knowledge creation through an analysis of outsourcing of service functions in the service and the manufacturing sectors and will provide a detailed analysis of productivity and employment effects of innovation activities in different services industries and countries. The third area on internationalisation of services will analyse the extent of international trade, international investment and international outsourcing of services and investigate their impacts on productivity, employment and growth. The methods employed will be mostly quantitative economic analysis, supplemented by case studies. The results of the project will provide a significant advancement of the knowledge base on the impact of service industry performance for strengthening productivity, growth and employment in the EU and so will be a useful resource for policy makers.