Although the methodology applied to collect the data is similar to time to export data from DB, the content of LPI is broader. The third indicator is an alternative for infrastructure measure. It measures the losses of firms within countries that resulted from power outages. These cross-sectional survey data, which are conducted only to firms in developing countries, are collected through Enterprise Surveys of the World Bank.<sup>14</sup> The final indicator is a measure of property rights from Index of Economic Freedom database. It measures the degree to which a country’s laws protect private property rights and the degree to which its government enforces these laws. This measure differs from the property rights measure in Economic Freedom of the World in its source of collection.<sup>15</sup> The data for infrastructure is available for 2005 to 2008 depending on the survey year. All other data are available for 2005-2007 periods. The results with these alternative variables are presented in Table 8. In all specifications, investment climate indicators have the expected signs and the interaction terms are significant. The findings are in close accordance with the main estimation results.

# **5. Alternative Specifications and Panel Estimation Methods**

The Economic Freedom of the World report publishes an index for the size of the trade sector relative to its expected size. Using regression analysis, an expected size of the trade sector (summation of import and export) is derived based on the population and geographical size of the country and its location relative to the concentration of world GDP. This expected size is compared to the actual size of trade. This procedure allocates higher ratings to countries with large trade sectors compared to what would be expected, given their population, geographic size, and location.<sup>16</sup> The level of knowledge capital in the country, the percentage of population speaking a major global language such as English, the legal origin of the country could affect the country’s export performance. Expected size of trade could be used to control for these factors that are likely to affect trade but cannot be controlled by factors like geography, size, and trade policies.

Another variable that I include in the robustness test is the net inflows of foreign direct investment (FDI) to the country. Dollar and Kraay (2003) show that there are countries like China where large shares of exports come from firms with foreign investment. Moreover, UNCTAD (2002a, b) reports illustrates that FDI can be expected to contribute to enhancing a country’s competitiveness on international markets by increasing the technological content of exports. FDI is usually directed towards either higher-value-added activities in newly targeted industries or higher-productivity and highertechnology activities within already targeted industries. Hence these establishments can cause technological spillover to domestic firms which can increase their competitiveness. Fugazza (2004) shows that the contribution of FDI to capital formation has a positive impact on export performance. Estimation results including both expected size of trade and FDI investment are presented in Table 9. Results show that both variables significantly increase export sales and do not distort the relationship

> 14 See www.enterprisesurveys.org for the methodology and data coverage. Each country is surveyed once and the survey year varies across countries.

> 15 IEF uses data from Economist Intelligence Unit, Country Profile, Country Report, and Country Commerce, 2005– 2008; U.S. Department of Commerce, Country Commercial Guide, 2005–2008; and U.S. Department of State, Country Reports on Human Rights Practices.

> 16 See Economic Freedom of the World Report for further details on the construction of this index and for a description of the methodology.

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