# **Discussion and comparison with HHR’s results:**

In the econometric analysis presented above we follow closely HHR (2006). In this subsection we compare our results to those in HHR and mention some differences in the assumptions made. In the cross-section analysis, HHR construct EXPY by using the average of PRODY for 1999-2001 while we use the current PRODY for every year. Additionally, HHR uses the COMTRADE database for the periods 1992-2003 and 1994-2003 whereas we use the same data source from the period 1994-2004. In terms of the specifications our estimates include additional covariates such as domestic credit as percentage of GDP, an export diversification index, and in some of them we also include type-of-economy dummies. HHR discuss briefly, though, the inclusion of some variables as robustness checks and mention not finding major changes in their results. Also, they present separate panel estimates for different subgroups of countries according to their income level.

Our OLS estimations are similar to those of HHR however somewhat stronger in terms of both magnitude and significance. In the IV estimations we do not find any significant effect and given the specification tests we find the model behaves rather poorly. HHR, although having very similar specification tests, find EXPY to have a significant and bigger effect than in their OLS estimates. Finally, in contrast with HHR we find that human capital and the Rule of Law index are significantly positive and robust to all specifications. It is most likely that these small differences in results are due to the different approaches employed in constructing EXPY.

For the panel regressions both papers use the World Trade Flows database and we find that the estimations results are very similar. In the GMM estimations for example, in the 5-yr panel we find that point estimates are between 0.046 and 0.051 compared to 0.0446 in HHR and in the 10year panel the estimates are the same 0.044, although, in both panels our estimates are more precise. In regards to the different effects of EXPY on growth according to the economies’ income level, we find the effects to be important for both the lower-income and lower-middle economies, although much stronger for the latter. We do not find any effect for the upper-middle economies. HHR in their corresponding exercise get very similar results although finding some effect for the uppermiddle income economies when using IV techniques.

To summarize, the econometric analysis presented here and in the HHR (2006) paper constitute evidence of EXPY having a robust positive effect on growth. The magnitude of the effect, however, depends very much on the specifications and estimation methods employed. As discussed above, in the cross-section analysis the OLS point estimates go from 0.035 in our estimates to 0.047 in HHR estimates. While in the panel estimations the EXPY coefficient goes from 0.034 using OLS to 0.046 using System-GMM. The corresponding numbers in HHR are 0.029 and 0.045 respectively. Furthermore, the effect of EXPY seems to be stronger for lower-middleincome economies and somewhat important for the lower-income economies. These results however, should be taken with caution due to the fact that our sample is restricted to countries reporting information in every year which decreases the representation of lower-income economies in the sample<sup>15</sup> .

> 15 In our cross-section sample the lower-income economies account for only 7% of the sample, while the lower-middle and upper middle account for 25% each, and the high-income economies for the remaining 44%.  In the panel regressions the distribution is rather different, the lower-income economies account for 20%, the lower-middle for 30%, the upper-middle for 18% and the high-income economies for 32%.  The HHR panel sample seems to have a similar distribution, although with similar participation of the upper-income and high-income economies (around 25%).

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