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infrastructure policies may affect the export characteristics in question. I interpret these infrastructure policies as instruments for infrastructure services and use them directly in the estimations. Having access to policy measures is an advantage in the sense that policy may be more exogenous than actual infrastructure. It may, on the other hand, come with the cost of larger measurement errors. To use the policy indexes as instruments for actual infrastructure outcomes in a two-step least squares estimation could be a way to bridge the two approaches. Empirical Strategy
To test the effect of infrastructure reform on export unit values, I estimate an equation where the unit value of exports is the dependent variable, and independent variables include infrastructure reforms (in power, roads, or telecommunications), lagged export values, tariffs into high-income countries, control variables (lagged GDP per capita, inflation, and investment climate index), and dummy variables to control for all time-invariant characteristics that affect the average level of unit values in a specific sector in a specific country as well as for common shocks across countries.10 Products are defined at the 4-digit SITC (Standard International Trade Classification) level. The variables and their sources are described below. The Country Setting and the EBRD Indexes
To investigate the link between infrastructure and export unit values, I take advantage of the transition experience of 10 Eastern European countries.11 Since around 1990, they have gone from being centrally planned economies to becoming open market economies. Eschenbach and Hoekman (2006) describe how Marxist thinking focused on material inputs, while service inputs were left with relatively low priority. Bottlenecks in transportation and low-quality telecommunications were two consequences of these policies. The potential for improvements in these sectors appeared to be large and the transition experience through the 1990s did indeed involve reforms of sectors providing infrastructure services. The European Bank for Reconstruction and Development (EBRD) has published yearly indexes of the extent of such reforms for each of the 10 countries.12 These indexes vary from a minimum score of 1 to a maximum score of 4.3. A description of what these indexes measure is found in the appendix of Eschenbach and Hoekman (2006).