they are encouraging numbers, when measured in terms of export returns. However, the estimated elasticities of about 0.10 suggest that there are strong diminishing returns to scale. Consequently, large expansions of EPAs budgets may not be desirable.<sup>16</sup> Regarding the other explanatory variables in the regression in Table 1, GDP per capita (ln _GDP/pop_ ) has a positive and statistically significant sign in all specifications suggesting that richer countries, with stronger and better institutions –including trade institutions– export more. The restrictiveness of the exporting country import regime (ln _T_ ) does not seem to affect export performance, suggesting that general equilibrium effects are not a strong determinant of exports.<sup>17</sup> In contrast, the restrictiveness faced by exporters (ln _MA_ ) in the rest of the world strongly reduces exports across all specifications with a slightly higher coefficient for developing countries when correcting for sample selection bias. Exchange rate volatility (ln _V ol_ ) also has a negative impact on exports, although it is statistically significant only in the case of the full sample after correcting for sample bias.<sup>18</sup> The number of days necessary to comply with export regulation in the exporting country has a negative, but generally insignificant impact on exports. The geography component of the trade to GDP ratio as provided in Frankel and Romer (1999) is always positive and statistically significant.<sup>19</sup> As discussed in the previous section, the results in Table 1 might suffer from reverse causality, as countries that export more might be more likely to establish EPAs, and from

> 16The next subsection discusses a break point (around $1 per capita of EPA expenditures) above which the marginal returns become negative.

> 17This result also suggests that in the early 2000s contrary to what was observed by Keesing and Singer (1991a) in the 1980s, the main constraint to exports is no longer the anti-trade bias of the import regime.

18The lack of a significant effect of nominal exchange-rate volatility on exports is consistent with recent result reported by Tenreyro (2007). This author shows that estimates of the effect of volatility on exports are quite fragile in the context of the gravity model of trade. The intutitive argument is that on the one hand, volatility reduces trade as it might act as friction against international transactions (i.e., by raising the costs of trade). On the other hand, exchange-rate fluctuations can offer profit opportunities for traders. Hence the net effect might be ambiguous. Also, the existence of financial instruments that help agents protect themselves against risk would also support the view that volatility might not have significant deleterious effects on international trade

> 19In both selection equations, size and aid per capita –which are our exclusion restrictions– have a positive and statistically significant, except for aid per capita in the developing country sub-sample where the coefficient has a p-value of 0.130. Thus, larger countries receiving large amounts of aid were more likely to be in our sample. This reflects in part, our capacity to identify the relevant agency in the country (as we were helped by World Bank’s country economists), but also the agencies capacity to answer the survey.

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