We also include two proxies for information spillovers: the number of firms that exported product _p_ in _t-1_ and the number of exporters serving market _j_ with product _p_ in _t-1_ . Potential exporters may see the participation of other Dominican firms in foreign markets as a signal of profitability. We therefore expect these two covariates to have a positive effect on the decision to export of new entrants.<sup>26</sup> Additionally, we control for the exporters location by adding a dummy _ez_ that equals 1 for firms operating in an Export Zone (EZ), and zero otherwise.

In order to account for the benefits of a reduction in import costs due to the bilateral feature of the agreement, we introduce the cut of the import weighted tariff. This variable was calculated at the sector level (HS 2-digit) using as weights the coefficients observed in the 2005 input-output table of the Dominican Republic.<sup>27</sup> The rationale is that following the implementation of the DR-CAFTA, firms in the Dominican Republic could have access to cheaper inputs. If this is the case, this would reduce their costs, improve their competitiveness and therefore increase their propensity to export.

We also add a measure of comparative advantage, namely the normalized revealed comparative advantage index (NRCA) suggested by Laursen (1998) in order to assess whether or not new exporters start in sectors where the DR has already a comparative advantage. The NRCA is based on the RCA<sup>28</sup> and was computed for each year at the HS 4-digit level according to NRCAkt= (RCAkt-1) / (RCAkt +1). The main advantage of the NRCA is its symmetry: it ranges between -1 and 1. An NRCAkt between -1 and 0 suggests a comparative disadvantage in sector _k_ in period _t_ , while an NRCAkt between 0 and 1 indicates a comparative advantage. We also add an interaction term between the NRCA and the tariffs cuts in order to determine whether the tariffs preferences promoted the entry into DR comparative advantage sectors more than the entry into non-traditional sectors.

Finally, time����, country���� and sectors ���� (at the HS2-digit) fixed effects are included. By their inclusion, we expect to control for any market, sector and year specific that could affect our results, such as the difficult business environment of 2008 and 2009. ���� is the usual idiosyncratic error term.

We also estimate equation (1) using the actual applied tariffs enjoyed by Dominican exporters in foreign markets instead of the tariff cuts. By including the tariff levels, we can distinguish between the short-term effects (i.e. tariff reductions/adjustments) and the long-run effects (i.e. tariff levels) of tariffs. Tariff levels should negatively affect the number of new exporters. The data for applied tariffs (HS6-digit) comes from TRAINS/WITS and is incomplete for the period 2002-2009, which reduces the number of observations for our empirical exercise.

Table 2 presents the results. The three first columns contain the estimations using the tariff cuts, while columns 4 to 6 show the results using the tariff levels. In each case there are three specifications, the first

> 26 It could also be the case that if the number of firms is too large with respect to the size of the market (i.e. the competition is too strong), potential exporters will decide not to enter that market.

> 27 The input-output table comes from the Dominican Central Bank publications: http://www.bancentral.gov.do/publicaciones_economicas.asp.

> 28 The revealed comparative advantage (RCA) index for a given year is given by RCAjk = (xik/Xi) / (xwk/Xw), where xik and xwk are the values of country _i_ ’s exports of product _k_ and world exports of product _k_ and where Xi and Xw refer to the country’s total exports and world total exports. The RCA ranges between zero and infinity. An RCA lower than one suggests that the country has a revealed comparative disadvantage in the product. Similarly, if the index exceeds unity, this implies that the country has a revealed comparative advantage in the product.

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