graduation status between 1982 and 2008.<sup>15</sup> Columns (ii) and (iii) in Table 4 report, respectively, random-effects and fixed-effects logit models. Fixed-effects logit estimates are based only on the 14 countries (accounting for 169 observations) for which in the dependent variable varies over time— countries that either graduated or degraduated during our sample period.<sup>16</sup> In these random- and fixed-effects tests, Political Freedoms and Institutional Capacity (and export concentration) remain significant, with higher odds ratios than in regression 1. Creditworthiness is significant (and positively associated with graduation) in random effects but not in fixed effects. The time trend remains significant in both tests, with each passing year reducing the odds of graduating by more than 30 percent. The banking crisis dummy is significant in fixed effects and positively associated with graduation. However, this estimate is based on only a single crisis (Korea in 1997) in regression (iii), while the negative association of banking crises with graduation in our 55-country sample is based on 11 crises. The small island dummy shows even less variation in the 14-country sample: its coefficient estimate in regression (iii) is based entirely on Oman, which had a population under 1.5 million in its first year (1984) in the sample but over 1.5 million thereafter. The transition dummy drops out of regression (iii) as it does not vary at all over time.<sup>17</sup>

# _Alternative institutional indicators_

As noted above, it is difficult to know how to operationalize the phrase “key institutions for economic and social development.” In Table 5 we therefore test alternative institutional development indicators.<sup>18</sup> Regression (i) includes the democracy index from the Polity dataset, commonly used in political science research. In contrast to the Freedom House indicator, the Polity index does not measure _outcomes_ (such as individual rights) often associated with democracy, but focuses instead on democratic _processes_ , particularly the methods used in selecting chief executives.<sup>19</sup> Despite this difference, the two variables are correlated at .91, and results for the Polity index in column (i) are very similar to results for _Political Freedoms_ in Table 3. Its coefficient is positive and significant, and a standard deviation increase (about 4.5 points on the 0-10 scale) is associated with an increase in the probability of graduating of about 2 percentage points.

Regression (ii) of Table 5 includes a different Polity variable, an index of executive constraints. This index is very highly correlated (at .95) with the democracy index from the same source, so it is not surprising that it produces similar results. A standard-deviation increase (about

> 15 Fixed-effects probit models cannot be estimated using conditional maximum likelihood, and unconditional fixedeffects probit estimates are biased.

> 16 The 14 countries are Cyprus, Czech Republic, Estonia, Gabon, Hungary, Korea, Latvia, Lithuania, Oman, Portugal, Slovak Republic, Slovenia, Trinidad and Venezuela.  Barbados graduated in 1984 but is missing data on _Institutional Capacity_ .  Bahamas graduated in 1989 but is missing data on _Credit Rating_ until 2000.  Iraq de-graduated in 2003 but is missing data on income.

17 A Hausman test prefers random over fixed effects estimation, when both are run using the same sample and specification.

> 18 Regressions in this table are all based on the larger sample of observations (Sample 1), and use the _ex post_ measure of per capita income.  However, we obtain similar results for the institutional variables if we switch to Sample 2 or to contemporaneous income data.

19 Our main regressions, in Table 3, use the Freedom House indicator rather than Polity to preserve sample size. Polity does not cover some small countries covered by Freedom House.

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