exit year.

**Differences from income and institutions** To better characterize the variation in returns across countries, we estimate the _β_ coefficients in Equation (1) including several country characteristics, beginning with (the log of) real GDP per capita and indicators for British and Socialist legal origins.<sup>19</sup> Since sector, vintage year, and exit year explained relatively little residual variation in Table 5, we exclude their fixed effects from subsequent analysis. The inclusion of real GDP per capita allows us to test the hypothesis from the neoclassical growth model that returns are higher in lower-income economies if markets are segmented (Lucas 1990). The inclusion of indicators of legal origins tests the hypothesis that the protection of property rights leads to higher returns. Protection of property rights is presumed greater in countries with British legal origins, and worse in countries with Socialist legal origins (La Porta et al. 1999). The omitted category is French or German legal origins (only one country in the sample, the Republic of Korea, is classified as having German legal origins, so we pool it with French origins). Results of this regression are reported in Table 6, which presents OLS estimates in Column (1) and quantile regression estimates at the 10th, 25th, 50th, 75th, and 90th percentiles in Columns (2)-(6). Panel A reports the specification for direct investments, and Panel B reports the specification for fund investments.

For GDP per capita, a nuanced pattern emerges. For direct investments in Table 6, Panel A, the OLS specification yields a positive association between GDP per capita and performance, though the standard error is large, such that the confidence interval includes a zero or negative association as well. The quantile regressions reveal that the average positive association is driven by investments at the 25th percentile, where a 1 percentage point increase in GDP per capita is associated with a PME increase of 0.05, an effect which is statistically significant at the 5% level. But, in contrast, at the 90th percentile, there is a larger negative association of GDP per capita on PME that was obscured by the average, though it is not statistically significant. Richer countries apparently have higher returns at the lower end of the distribution, but also potentially fewer “home runs,” or investments at the top of the distribution. For fund investments in Table 6, Panel B, the association with GDP per capita is uniformly positive, including at the 90th percentile, and larger quantitatively, indicating private equity funds may perform better in higher income countries, relative to the IFC’s direct investment. These results are consistent with imperfect capital market integration. Given the negative association between returns to direct investments and GDP per capita at the 90th percentile, we cannot entirely reject the neoclassical growth model that predicts lower returns in richer countries. Yet the finding that the returns to direct investments are greater with increased GDP per capita at other percentiles, and uniformly higher returns to fund investments with increased GDP per capita, suggests we also cannot reject the hypothesis of Lucas (1990), that “political risk” lowers returns in lower income countries and explains low investment there.

> 19Table A8 reports results using the IRR as measure of performance. Table A9 reports results when restricting the sample to only realized investments. The results are qualitatively similar.

19