First, we include a measure that tracks developments in foreign demand. The term ∆�netimportck6t� is the log difference in overall demand in each destination country for imports in the product. We compute this demand as product-specific net imports, where Pakistan’s exports have been subtracted from the total imports of each destination country. This procedure allows avoiding endogeneity problems. We also include the log difference in bilateral nominal exchange rates expressed as number of rupees by one unit of the foreign currency. Finally, we add a PTA dummy which is equal to one in country-year combinations for which Pakistan has preferential trade agreements.

Second and turning to trade policy determinants, we document the impact of changes in variable and fixed export costs on firm-level export growth. We use two separate measures: the first one is the log difference in the standard deviation of tariff rates within sector-country bins [∆(sd(tariff)ck4t)]. A sector is a 4 digits HS code and this measure captures the effect of the complexity of the tariff regime in the destination country. We assume that the complexity of the tariff system is a source of important information costs for a firm willing to enter the market, and thus a proxy for fixed costs to export. As a control, we complement this measure with the log difference in the tariff level [∆(tariffck6t)].<sup>21</sup> Second, we propose a novel measure of changes in the entry fixed cost to export. We track the change in sum of the number of days it takes to fulfill customs procedures to export from Pakistan and to import in the destination country where the trade transaction is directed. In order to take into account non-linearities in trade costs, we deflate this measure by distance between Pakistan and the partner country.<sup>22</sup> The underlying idea is that changes in trade costs in further away countries should have less of an impact on the export decisions of Pakistani firms than corresponding changes in neighboring countries. We assume that a reduction in the number of days needed for clearing merchandise at the customs is correlated with a more general effort of a country to simplify import procedures (and/or an effort from the Pakistani authorities to expedite the movement of products across borders) and thereby reduce the fixed costs of entry to world markets. We obtain country specific data on the number of calendar days to import (export) from the World Bank Doing Business database.<sup>23</sup> Finally we add time-varying 2-digit HS fixed effects to the specification (φk2t). These act as sectoral deflators, controlling for any time-varying sectoral determinants, including any sector

> 21 Source for the tariff data: Market Access Map, Market Analysis Tools, International Trade Centre, www.intracen.org/marketanalysis.

> 22 Specifically, our measure of fixed cost to export between Pakistan and country c between year t+1 and year t is defined as ∆(customs_daysct) = ln�days_expmkd,t+1+days_impc,t+1�−ln (days_expmkd,t+days_impc,t) ln�distancemkd,c� ln (distmkd,c)

23 The time for exporting (importing) is recorded in calendar days. The trading across borders methodology defines this variable as _“The time necessarily to comply with all procedures required to export (import) goods. The time calculation for a procedure starts from the moment it is initiated and runs until it is completed. If a procedure can be accelerated for an additional cost and is available to all trading companies, the fastest legal procedure is chosen. Fast-track procedures applying to firms located in an export processing zone are not taken into account because they are not available to all trading companies. Ocean transport time is not included. It is assumed that neither the exporter nor the importer wastes time and that each commits to completing each remaining procedure without delay. Procedures that can be completed in parallel are measured as simultaneous. The waiting time between procedures—for example, during unloading of the cargo—is included in the measure.”_ 42