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We explore the role of business services in knowledge accumulation and growth and the determinants of knowledge diffusion including the role of distance. A continuous-time model is estimated on several European countries, Japan, and the United States. Policy simulations illustrate the benefits for EU growth of the deepening of the single market, the reduction of regulatory barriers, and the accumulation of technology and human capital. Our results support the basic insights of the Lisbon Agenda. Economic growth in Europe is enhanced to the extent that: trade in services increases, technology accumulation and diffusion increase, regulation becomes both less intensive and more uniform across countries, and human capital accumulation increases in all countries.

Diffusion of innovations -- Europe -- Econometric models. --- Electronic books. -- local. --- Human capital -- Europe -- Econometric models. --- Information technology -- Europe -- Econometric models. --- Exports and Imports --- Labor --- Public Finance --- Information Management --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Technological Change: Choices and Consequences --- Diffusion Processes --- Empirical Studies of Trade --- Taxation, Subsidies, and Revenue: General --- Technology --- general issues --- Labour --- income economics --- Knowledge management --- International economics --- Public finance & taxation --- Human capital --- Technology transfer --- Trade in services --- Information technology in revenue administration --- International trade --- Revenue administration --- Balance of trade --- Revenue --- United States --- Diffusion of innovations --- Information technology --- Econometric models.