12 variable systematically increases (decreases) after reforms in our sample, and this increase (decrease) is prompted by a factor other than trade reform (e.g. savings policy, foreign direct investment policy). The only reason we think this could systematically be the case is if simultaneous structural adjustment reforms lead to higher investment. Nevertheless, we observe in Section 5 that there is only a mild increase in investment before and after trade liberalization, and therefore it cannot significantly explain an increase in output growth after reforms. We thus exclude this variable from most regressions, but include the investment share of output (two-years lagged) in one of our specifications to test for the robustness of our results.

Fourth, we observe that several variables in C, although assumed to vary only gradually, may have changed significantly over the period under our scrutiny<sup>7</sup> . Geography is constant but other factors listed in Appendix 2, are clearly not. Institutions can change over time and indeed, one vast and systematic institutional reform occurred during the period under consideration in this paper: transition from communism. This move launched a radical transformation from state-led to market institutions. The transition from communism is such a cataclysmic event, that we opt to remove transition economies from the sample.<sup>89</sup> Another control variable commonly included in growth regressions is population size, which we include in our regression in an instrumented form (two-year lagged) to avoid endogeneity with respect 7 The control variables considered in this study is taken from a list from Bosworth and Collins (2003), which includes those most commonly used in the empirical growth literature. See Appendix 2.

8 A similar but less dramatic event is the implementation of structural adjustment reforms. Given that basically all developing countries have undertaken trade liberalization as part of structural adjustment programs, we maintain structural adjusters in the sample (see footnote 5). These reforms (exchange rate reform, fiscal adjustment, privatization of imports and exports companies, openness to foreign capital, etc) are complementary to trade liberalization. Thus, as in Baldwin (2003), our conclusions talk about the impact of trade liberalization defined in a broader sense: the dismantling of ISI and switch to outward orientation.

9 Wacziarg and Welch (2003) attempt to separate the effect of trade reform from the impact of other complementary policies embedded in structural adjustment reforms by estimating their results after removing from the sample those countries that implemented trade liberalization together with a comprehensive privatization program. There are three main caveats in their approach as some of the pure reformers: (i) did undertake privatization few years before or after the trade liberalization episode, thus also significantly affecting growth rates after trade liberalization (Kenya); (ii) implemented significant privatization though considerable state involvement in the economy remains (India and Morocco); or (iii) implemented other non-privatization reforms (e.g. deregulation, sectoral reforms, fiscal adjustment, etc) that could equally alter potential growth by stabilizing an economy or fostering the development of market institutions (e.g. Bolivia, Ghana, Kenya). Taking these caveats into consideration, their sample of pure trade reformers would be reduced to only 3 countries.