the interaction between this time trend and a dummy variable that equals one for developing countries and zero for developed ones. Moreover, to be able to accurately estimate these time trends and differentiate them from the effect of reforms, we include all the years for which we have data available on the dependent variables in these regressions (we do not restrict the sample to a ten-year window around the reform dates). We also include all countries with data on the dependent variables, irrespective of whether they implemented the reform under analysis, to obtain better estimates of the time effects.<sup>42</sup> We present results only for the domestic stock market development variables, as we have a significantly shorter time series for internationalization variables, which makes it very difficult to separate the effect of a time trend from that of the reforms. To keep the number of tables at a manageable level, we only present the results without including additional controls.<sup>43</sup> The results are presented in Table 8.

The results for stock market capitalization over GDP (top panel) show that, even when controlling for time effects, some of the reforms remain statistically significant. In particular, the enforcement of insider trading laws, privatization, and pension reform are followed by significant increases in market capitalization. Regarding the time effects, the results show that there is a positive and significant trend, but this trend is lower (although still positive) in the case of developing countries.<sup>44</sup> The results for both value traded domestically (middle panel) and capital raised domestically (bottom panel) also show that some capital market reforms are followed by significant increases in domestic activity, even when controlling for time effects. In particular, the enforcement of insider trading laws, the introduction of electronic trading systems, and institutional reform are all statistically significant and positive in the regressions of value traded domestically over GDP. In the case of capital raised domestically, the introduction of electronic trading systems and privatization are both significant at the one percent level.

In sum, even with the difficulty of separating the two effects mentioned above, the finding that some reforms remain positive and significant in Table 8 suggests that our reform dummies are not just capturing the effects of some underlying trend, but rather that these reforms were associated with the development of domestic stock markets. In the case of internationalization, separating the impact of a common time trend from that of reforms would require longer time series of our dependent variables.

> 42 The sample in these regressions is restricted to those countries for which we have information to determine whether they implemented the reform under analysis in each case or not. As an alternative, we estimated the regressions assuming that those countries with missing data on a reform did not implement it and obtained similar results in most cases.

> 43 In most cases, similar results can be obtained when controlling for domestic and international macroeconomic variables.

> 44 The time trend for developing countries is equal to the sum of both the common time trend and the trend interacted with the developing country dummy. This time effect is positive and statistically different from zero at the one percent level in all specifications.

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