Table 2 reports the results of the linear probability model estimated in equation (2).<sup>15</sup> As expected, higher applied tariffs in country � are negatively related to the probability of exporting from country � to � (see column 1). The coefficient of log tariff is negative and significantly different from zero. Tariffs are on average 4.65%. This implies that decreasing tariffs by one percentage point, equivalent to a 22% reduction of the average tariff, increases the probability of export by 0.12 percentage points (�� ∗0.22).

Column 2 shows how trade commitments (multilateral and regional) affect the probability of trade between two countries. The negative and significant coefficient of the (log of the) bound rate suggests that countries are less likely to export to countries with higher bound rates. At the average level, a reduction of bindings of one percentage point (from 8.3 to 7.3%) is associated to a 1.6% increase in the probability of export. These results indicate that not only lower tariff rates, but also more stringent bindings are related to more international trade.

The baseline result is shown in column 3. Trade policy uncertainty, as captured by water, reduces the probability to trade. The magnitude of the coefficient is economically significant. At the average level of water, improvements in commitments through a reduction of water by one point, from 4.1 to 3.1% (almost 24% decrease), are associated to an increase in the probability of exporting of 1.3 percentage points. Alternatively, eliminating trade water will increase exports by almost 6%. The results are in line with Handley’s findings for Australia, where water elimination would lead to an 8.8% increase in imported products. The outcomes confirm the theoretical prediction that trade policy uncertainty represents a cost that induces firms to wait and postpone entry to foreign markets. Firms are more likely to export their products not only to countries that have lower tariffs (the coefficient of tariffs is negative and significant), but also to countries with lower water, where the losses deriving from a potential increase in tariffs are limited.

The OLS results for the intensive margin are presented in the last three columns of Table 2. The loglog nature of the specification allows the interpretation of the coefficients on tariffs and bound rates as elasticities. Column 4 shows that a 1% reduction in tariffs is associated to a 3.5% increase in the value of exports. When bound tariff rates are included in the regression (column 5) the tariff coefficient decreases to 3%. Moreover, a reduction in bound rates is negatively associated to the value of exports: reducing the bound rate by 1% increases exports by a 0.7%.

Column 6 shows the baseline results. A reduction of water has a positive effect on the intensive margin of trade. Given the log-level nature of the specification for the estimation of the coefficient of water, our finding suggests that a 10 percentage points decrease in water is associated to a 4.7% increase in

> 15 To avoid the incidental parameter problem due to the big set of fixed effects included in the regression, OLS is used to estimate the impact of trade policy uncertainty on the extensive margin of trade. The coefficients of equation (2) have been estimated using the Stata command _reg2hdfe_ developed by Guimaraes and Portugal (2010).

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