(FDI). Indeed, further trade integration is a promising initiative, as Ecuador’s unrealized trade potential is estimated to be large (Word Bank, 2004) and export-oriented enterprises tend to perform much better than non-exporting firms: on average, exporters are four times larger and six years older than non-exporters; have total sales per worker almost 40 percent higher than non-exporters; pay wages that are, on average, 45 percent higher than non-exporters; on average, the share of exporters that used the web is 50 percent larger than the share of non-exporters; 83 percent of exporters offered training to their permanent staff, a share 32 percent larger than the share of non-exporters offering it; and the share of exporters with productive plants abroad is four times larger than the share of non-exporters.

The materialization of this trade potential in Ecuador is jeopardized, however, by the poor conditions of the “investment climate.” Power outages, for example, affected 86 percent of manufacturing firms in Ecuador and cost 7 percent of sales of exporting firms. Current financial intermediation by the private sector corresponds to only 15 percent of GDP, roughly half the volume before the financial crisis. A R&D share of GDP of 0.1 percent, inferior to that of Colombia and Peru – close competitors in the U.S. market – indicates that firms may lack the appropriate knowledge to enter new product markets. Customs clearance for exports takes on average 8.7 days, three times longer than Honduras and Guatemala, also lower-middle-income countries. Addressing all inadequacies of the investment climate at the same time is obviously impossible. Therefore, if the Government of Ecuador decides to implement complementary policies to develop the internal supply of exportable goods and facilitate the realization of the potential gains from trade, what should be its priorities?

In this paper, we try to identify the main constraints to the development of internal supply of exports in Ecuador by using the 2003 Investment Climate Survey to estimate a Heckman selection model of two interdependent decisions: (i) whether a firm exports or not (the probability to export); and, (ii) how much to export (the proportion of total sales to export or export intensity). From our point of view, this is an improvement in the standard approach found in the literature that estimates two independent models: a Probit (for the probability of exporting) and a Tobit (for export intensity). Similar efforts to estimate the impact of the “investment climate” on export performance have also been done for other countries, including China (Dollar et al., 2003) and Brazil (Fajnzylber, 2004).

The reminder of the paper is organized as follows. The next section provides a brief overview of previous studies on the micro-determinants of the export performance of firms, with a focus on firm size, the industry to which a firm belongs, and technology. Section three provides a descriptive analysis of the ICS data. Section four presents the econometric specification and the conceptual framework, detailing the four models developed in this exercise. Section five presents and discusses the estimations results and Section six concludes. The main conclusions were that technology is an important driver of exports for Ecuadorian firms and those that perform in-house R&D, have a quality certification, access the internet, and/or import inputs are more likely to become exporters and to present higher export intensities. Also, trade orientation is a significant determinant of firms’ export performance, with specialized firms tending to have smaller 3