returns. If uncertainty is a problem hitting particularly micro and small firms, then these could be less likely to invest in spite of the potentially large ex-post returns. To account for differences across firms in economic uncertainty, we follow Aterido et al (2011) and explore information on how managers rank the importance of the uncertainty in the economic and regulatory policy relatively to other obstacles.<sup>35</sup> Our prior is that for firms reporting that economic uncertainty is more of an obstacle than other factors, they will be less likely to invest in job training. And, because firms differ significantly in the level of perception on how important these different economic factors are, we also control for differences across firms in the a group of indicators (including perceptions regarding the economic and regulatory policy uncertainty, macroeconomic instability, corruption, crime, theft and disorder, anti-competitive or informal practices, legal system/conflict resolution). Column (7) reports the results of this regression. Reassuringly the point estimates remain very similar to the ones reported in column (1). Again this suggests that although facing higher levels of economic uncertainty seems to matters for this investment, this does not disproportionally explain why SMEs train less than larger firms.

A possible concern with the findings in table 7 relates to the potential endogeneity of the explanatory variables in columns (2) through (7). If the investment in job training within the firm leads to higher employment growth as well as to greater access to finance, or to a greater share of reinvested profits, then the point estimates could be biased upwards. We follow Aterido et al (2011) and construct proxies for each of the factors discussed in table 7 but based instead on the responses of the average firm located in the same country, location, sector and size cell (excluding the observation related to the own firm).<sup>36</sup> Matching the mean response for each firm is a two step approach. To illustrate,

> 35 The exact question in the _Enterprise Surveys_ is _“_ Please tell us if any of the following issues are a problem for the operation and growth of your business. If an issue poses a problem, please judge its severity as an obstacle on a four-point scale: Telecommunications,  Electricity, Transportation, Access to Land, Tax rates,  Tax administration, Customs and Trade Regulations, Labor Regulations, Skills and Education of Available Workers, Business Licensing and Operating Permits, Access to Financing, Cost of Financing, Economic and Regulatory Policy Uncertainty,  Macroeconomic Instability, Corruption, Crime, theft and disorder, Anti-competitive or informal practices, Legal system/conflict resolution. Rankings vary between 1 and 5. Some papers have explored this information to relate levels in perceptions with firm performance (e.g., Ayyagari et al. 2008; Beck et al. 2005; Pierre and Scarpetta 2006).

36 To ensure adequate numbers of firms in each cell average we drop one dimension of the cell until an adequate number is reached, i.e. first substituting by country-location-size averages, then by countrysector-size averages, etc. Aterido (2011) also explore this approach.

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