significantly the probability of non-compliance, conditional on sampling rates. This might hint at some improvement in targeting of sampling after the reform. But that is not the case, as verified by the worrying coefficient on the interaction term in column (5) of Panels B and C, which suggests that the relationship between sampling and non-compliance became significantly more negative after the reform was implemented. This finding is true even based on the sample where shipments with corresponding sampling rates higher than 1 are dropped, in column (10) of Panels B and C. Such negative relationships are unexpected and counter-intuitive because we would expect the probability of non-compliance to be higher when the sampling rates are higher even prior to the reform, but especially after the reform. This follows from the risk management principle that sampling rates should be higher when probabilities of violations are higher. Thus, if the reform was effective it should have strengthened the positive relationship between non-compliance rates and sampling rates. That does not seem to be the case for FYR Macedonia, even if we consider only the second semester of 2014 as the reform period (Panel C) ignoring the funding dispute with the public laboratories that plagues our analysis. Overall our findings suggest that the targeting of sampling is not effective in FYR Macedonia.

**Table 6. Non-compliance testing regressions** **<u>Panel A. Period pre-reform</u>**

||||De|pendent varia|ble: indicato<br>Sample p|r for import s<br>eriod: 2013-1|hipment sam<br><sup>st</sup>semester o<br>Excluding|pled being non-com<br>f 2014<br>sampling rates larg|pliant<br>er than 1|||
|---|---|---|---|---|---|---|---|---|---|---|---|
||||(1)|(2)|(3)|(4)|(5)|(6)<br>(7)|(8)|||
||Sampling rate||-0.000|0.003|0.006|0.005|-0.000|0.004<br>0.006|0.005|||
||||(0.002)|(0.003)|(0.004)|(0.004)|(0.003)<br>|(0.004)<br>(0.004)|(0.005)|||
||Broad product gro|up fixed effects|<br>No|Yes|Yes|Yes|No|Yes<br>Yes|Yes|||
||Country of origin|fixed effects|No|No|Yes|Yes|No|No<br>Yes|Yes|||
||Semester-Year fix|ed effects|No|No|No|Yes|No|No<br>No|Yes|||
||Observations||1,594|1,594|1,594|1,594|1,579|1,579<br>1,579|1,579|||
||R-squared||0.000|0.007|0.020|0.021|0.000|0.007<br>0.020|0.021|||
||||**Panel B**<br>Depe|**. Refor**<br>ndent varia|**m per**<br>ble: indicat<br>|**iod unt**<br>or for impo<br>Sample per|**il 2015**<br>rt shipmen<br>iod: 2013-2|<br>Excluding sam<br>t sampled being<br>015|pling rates<br>non-compl|larger than<br>iant|1|
|||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|(9)|(10)|
|Sampling rate||-0.015***|-0.006*|-0.017*|-0.011|0.008|-0.017**|*<br>-0.006*|-0.018*|-0.011|0.008|
|||(0.005)|(0.003)|(0.010)|(0.007)|(0.007)|(0.006)|(0.003)|(0.010)|(0.008)|(0.008)|
|Post-reform indica|tor (2<sup>nd</sup>semester|||||||||||
|of 2014 & 2015)|||||0.017**|0.040**||||0.017**|0.040**|
||||||(0.008)|(0.015)||||(0.008)|(0.016)|
|Sampling rate * Po|st-reform|||||||||||
|indicator (2<sup>nd</sup>seme|ster of 2014 &|||||||||||
|2015)||||||-0.033**|||||-0.033**|
|||||||(0.013)|||||(0.013)|
|Broad product grou|p fixed effects|No|Yes|Yes|Yes|Yes|No|Yes|Yes|Yes|Yes|
|Country fixed effec|ts|No|No|Yes|Yes|Yes|No|No|Yes|Yes|Yes|
|Semester-Year fixe|d effects|No|No|Yes|No|No|No|No|Yes|No|No|
|Observations||2,296|2,296|2,296|2,296|2,296|2,281|2,281|2,281|2,281|2,281|
|R-squared||0.007|0.044|0.079|0.073|0.079|0.007|0.044|0.079|0.073|0.079|

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