23 sub‐categories into averages of the corresponding “In Law” and “In Practice” questions, resulting in 45 indicators at the more disaggregated level.<sup>6</sup> GII has cumulatively covered 92 countries since its inception in 2004, some for multiple years. We take data from the 2007 and 2008 waves of GII, covering 50 and 46 countries respectively (available from the GII website as of February 2009). We take all of the 46 countries covered in 2008, and add to this 24 countries covered in 2007 but not in 2008, to obtain a cross‐section of 70 countries in total. In some cases our sample size will be slightly smaller depending on the country coverage of the outcome variables we work with. The 2008 questionnaire contains 320 individual items, while the 2007 questionnaire covers 304 items. The overlap between the two is extremely close, and after merging the two questionnaires we have a total of 303 questions asked in both years.<sup>7</sup> Of these, 184 are “In Practice” questions and 119 are “In Law” questions.

The second dataset we use is the Doing Business (DB) indicators produced by the World Bank. The DB indicators cover 10 dimensions of the business regulatory environment (Starting a Business, Dealing with Construction Permits, Employing Workers, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Closing a Business). These are based on 41 individual measures. For example, the “Starting a Business” measure is itself based on four sub‐indicators, measuring (1) the number of procedures, (2) the number of days, (3) the cost of associated fees, and (4) the minimal capital requirement, required to start a new business. The DB data is scenario‐based. Respondents are provided with a very detailed scenario about a hypothetical transaction, for example, registering a firm with particular characteristics in the capital city of the country. The data collected by DB correspond to what a hypothetical firm described in the scenario would experience. Since the subcomponents of each of the 10 DB measures are measured in different units, countries are first ranked on the individual variables. These ranks are then averaged within each of the 10 broad indicators to arrive at the indicator ranks. Finally, the average ranks on 10 indicators

> 6 One of the GII subcategories, Anticorruption Law, consists exclusively of “In Law” questions and so there is no corresponding “In Practice” aggregate for us to construct.  This is why we have only 45, and not 46 variables at this level of disaggregation.

> 7 We focus on the 2007 and 2008 questionnaires which are most comparable to each other.  A few questions were asked at a more detailed level in the 2008 data when compared with 2007.  We therefore average the following pairs of questions in the 2008 data to make them comparable to their 2007 analogues : questions 20b and 21b; 20e and 21d; 20f and 21e; 20g and 21f; 22a and 23a; 22b and 23b; 22d and 23c; 22e and 23d; 22f and 23e; 24a and 25a; 24b and 25b; and 24c and 25c. We also delete questions 21a, 46a, 46e, and 46i from the 2008 questionnaire that we not asked in 2007.  This reduces the number of individual questions in 2008 to 303.

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