investment climate indicators, the significant ones are in accordance with the empirical findings in the literature. Better regulatory quality, quality of infrastructure, and protection of property rights lead to higher export sales whereas the inefficiencies in trade facilities decrease exports. The interaction terms between market access and IC indicators are significant with the expected signs in all specifications. This shows that improvements in investment climate would make larger contributions to increasing export performance of countries with low foreign market access relative to the ones with high foreign market access. The difficulties in access to foreign markets require higher levels of competitiveness and efficiency in exporters. Hence, the marginal contribution of improvements in investment climate to export revenues of these firms will be relatively larger than their contribution to firms in countries with easy access to foreign markets.

It is possible to measure the total impacts of the investment climate indicators on export performance. Using the estimation results from Table 6, I find total impacts of one standard deviation change in investment climate indicator on growth rates of export sales.<sup>10</sup> To show how countries with different levels of foreign market access benefit from this improvement, I compare 25<sup>th</sup> and 75<sup>th</sup> percentiles of foreign market access restrictiveness index which correspond to 2 and 5.5 percent tariff rates respectively.<sup>11</sup> The difference between growth rates of export sales generated by the change in each IC indicator for the two values of foreign market access index are given in Table 7. The table shows that a country in the 75<sup>th</sup> percentile of market access index distribution benefits from one standard deviation improvement of regulatory quality by 10 percentage points more than a country in the 25<sup>th</sup> percentile of the distribution. The impacts of the other IC indicators are of similar magnitudes. This finding shows that improvements in investment climate are important in reducing the barriers of trade and in leading to the convergence of export performance of countries.

I tested the findings which were presented in Table 6, with several alternative indicators of investment climate such as rule of law from WGI, logistic performance index (LPI) from WTI, a measure of infrastructure from Enterprise Surveys database, and a measure of property rights from index of economic freedom (IEF). The information contained in these variables are similar to the ones presented in Table 6, however they are obtained from different sources.<sup>12</sup> Rule of law captures the extent to which agents have confidence in and abide by the rules of society, the quality of contract enforcement, the police and the courts, as well as the likelihood of crime and violence. The second indicator is logistic performance index (LPI) which reflects the overall performance of a country’s logistics environment.<sup>13</sup> 10 The standard deviation in the investment climate indicators are calculated over the largest regression sample which corresponds to 205 observations. The change is applied in the direction of improvement in the investment climate indicator.

11 The formula applied is as follows:  _Export it_ (75)   _Export it_ (25)   8 *  _Indicatorit_  1 * (log( _MATTRI it_  1(75))  (log( _MATTRI it_  1(25))) . 12 The rule of law is an exception. Although it is also collected through WGI, the variables used in constructing rule of law are different than the ones used for regulatory quality. I have included this indicator as it has been used in several studies such as Dollar and Kraay (2003) and Freund and Bolaky (2008) as a proxy for institutional quality and it significantly relates to welfare of countries.

> 13 LPI is formed of the following subcategories: efficiency of the customs clearance process, quality of transport and transport‐related infrastructure, ease of arranging competitively priced shipments and competence, quality of logistics services, and tracking ability and timeliness of shipments.

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