Table 6: The Return to Institutional Quality Improvement is Higher for Less Developed Countries

|**_Dep. Variable_**:|**_ln(Ex_**|**_port)_**|**_ln(No. o_**|**_f Varieties)_**|**_ln(Expor_**|**_t/Variety)_**|
|---|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|(6)|
|Rule of law|-0.326<sup>_∗∗∗_</sup>|-0.280<sup>_∗∗∗_</sup>|-0.156<sup>_∗∗∗_</sup>|-0.141<sup>_∗∗∗_</sup>|-0.170<sup>_∗∗∗_</sup>|-0.139<sup>_∗∗∗_</sup>|
|Rule of law x Inst-Int|0.615<sup>_∗∗∗_</sup>|0.596<sup>_∗∗∗_</sup>|0.159<sup>_∗∗∗_</sup>|0.154<sup>_∗∗∗_</sup>|0.455<sup>_∗∗∗_</sup>|0.442<sup>_∗∗∗_</sup>|
|Rule of law x Inst-Int x OECD|-0.199<sup>_∗∗∗_</sup>|-0.250<sup>_∗∗∗_</sup>|0.041|0.024|-0.240<sup>_∗∗∗_</sup>|-0.274<sup>_∗∗∗_</sup>|
|lnH|-0.327<sup>_∗∗∗_</sup>|-0.269<sup>_∗∗∗_</sup>|-0.304<sup>_∗∗∗_</sup>|-0.283<sup>_∗∗∗_</sup>|-0.023|0.014|
|lnH x H-Int|0.100<sup>_∗∗∗_</sup>|0.089<sup>_∗∗∗_</sup>|0.076<sup>_∗∗∗_</sup>|0.072<sup>_∗∗∗_</sup>|0.024|0.017|
|lnH x H-Int x OECD|-0.046<sup>_∗∗∗_</sup>|-0.045<sup>_∗∗∗_</sup>|-0.017<sup>_∗∗∗_</sup>|-0.017<sup>_∗∗∗_</sup>|-0.029<sup>_∗∗∗_</sup>|-0.028<sup>_∗∗∗_</sup>|
|lnK|-0.781<sup>_∗∗∗_</sup>|-0.744<sup>_∗∗∗_</sup>|-0.140<sup>_∗∗_</sup>|-0.126<sup>_∗_</sup>|-0.640<sup>_∗∗∗_</sup>|-0.618<sup>_∗∗∗_</sup>|
|lnK x K-Int|0.446<sup>_∗∗∗_</sup>|0.463<sup>_∗∗∗_</sup>|-0.034|-0.028|0.480<sup>_∗∗∗_</sup>|0.491<sup>_∗∗∗_</sup>|
|lnK x K-Int x OECD|-0.085<sup>_∗∗_</sup>|-0.074<sup>_∗_</sup>|-0.061<sup>_∗∗∗_</sup>|-0.057<sup>_∗∗∗_</sup>|-0.023|-0.017|
|NR|-0.010<sup>_∗∗∗_</sup>|-0.006<sup>_∗_</sup>|-0.009<sup>_∗∗∗_</sup>|-0.008<sup>_∗∗∗_</sup>|-0.001|0.002|
|NR x ROECD|0.012<sup>_∗∗_</sup>|0.007|0.015<sup>_∗∗∗_</sup>|0.013<sup>_∗∗∗_</sup>|-0.003|-0.006|
|NR x N-Int|-0.026<sup>_∗∗∗_</sup>|-0.027<sup>_∗∗∗_</sup>|-0.010<sup>_∗∗∗_</sup>|-0.010<sup>_∗∗∗_</sup>|-0.016<sup>_∗∗∗_</sup>|-0.017<sup>_∗∗∗_</sup>|
|NR x N-Int x OECD|0.003|0.003|0.002|0.003|0.000|0.001|
|lnESTABLISH|0.075<sup>_∗∗∗_</sup>|0.069<sup>_∗∗∗_</sup>|0.020<sup>_∗∗∗_</sup>|0.018<sup>_∗∗∗_</sup>|0.055<sup>_∗∗∗_</sup>|0.050<sup>_∗∗∗_</sup>|
|lnGDPE|2.516<sup>_∗∗∗_</sup>|2.289<sup>_∗∗∗_</sup>|1.114<sup>_∗∗∗_</sup>|1.038<sup>_∗∗∗_</sup>|1.402<sup>_∗∗∗_</sup>|1.251<sup>_∗∗∗_</sup>|
|lnGDPI|0.305<sup>_∗∗∗_</sup>|0.303<sup>_∗∗∗_</sup>|0.044<sup>_∗∗_</sup>|0.043<sup>_∗∗_</sup>|0.261<sup>_∗∗∗_</sup>|0.260<sup>_∗∗∗_</sup>|
|No. of Observations|720679|720679|720679|720679|720679|720679|
|F-Statistic|269.212|65.959|669.170|94.311|83.117|38.285|
|Prob _>_ F-Statistic|0.000|0.000|0.000|0.000|0.000|0.000|
|R<sup>2</sup>|0.707|0.707|0.839|0.839|0.526|0.527|
| ̄_R_<sup>2</sup>|0.703|0.704|0.837|0.837|0.521|0.521|

_∗ ∗∗ ∗∗∗ p <_ 0 _._ 1, _p <_ 0 _._ 05, _p <_ 0 _._ 01. Each regression includes (unreported) industry, year and exporter-importer fixed effect. Error terms are clustered by exporter-importer pairs. Selection-bias is corrected using the Inverse Mills Ratio and polynomials of _z_ in Columns 1, 3 and 5, and using the dummy variable approach in Columns 2, 4 and 6.

countries comes from the intensive margin. Hence, not only do developing countries have a larger room for improvement than their present level of institutional quality entails, but they would also achieve for every step they take in that direction. As the results in Table 6 show, developing countries could similarly expect more favorable benefits from physical and human capital accumulation.

**Export Dynamics** As stated in earlier sections, the effects of institutions on the extensive margin of trade should be taken with a grain of salt, in the face of short-lived export relationships – poor survival rates. That is, the statistical significance of the effects of institutional reforms on the extensive margin may mean little for policy makers if foreign market entrants exit the market within a year or two. This view, however, takes survival rate as exogenous – something that does not change with the reform. We argue that survival rate itself responds to institutional quality improvements. The data support our argument. As shown in Table 7, export (product) survival rate itself improves with institutional quality, and the improvement rises with the degree of contract intensity of the product/industry. That is, with better institutions, countries could not only be able to start exporting contract-intensive products (to new markets) but would also be able to survive the competition in these newly discovered products or markets. Furthermore, this holds true for both developed and developing country samples.

19