Structural Change and the Environment: An Application to the WIOD Database Deliverable 7.2 by...
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Structural Change and the Environment: An Application to the WIOD Database
Deliverable 7.2by Andreas Löschel, Sascha Rexhäuser and Michael Schymura
WIOD Consortium Meeting, Seville, 25th – 28th June 20115
Structural Change and the Environment
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Content
Introduction
Data and Econometric Model
Endogenity Problems
Results
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Instruments4
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Results
Conclusions and Drawbacks
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1 Introduction
Research Questions:
Is Free Trade Good or Bad for the Environment?
Which factors are affected by trade?
Direct or indirect impacts?
Methodology:
Structural Decomposition Analysis (SDA)
Panel Econometrics
Approach based on the seminal contribution by Antweiler, Copeland and Taylor (2001, A.E.R.)
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2 Data and Econometric Model
Used data from WIOD:
Information about Gross Output, Share of high-skilled workers
Environmental Satellite Accounts
Trade Data
Other data sources:
Income, Population, Investments (PWT 6.3)
Depreciation, TFP growth, Capital Stocks (EPWT 3.0)
Geographical informations such as distance, area etc. (CIA)
Data on patents (several sources)
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1 2 Data and Econometric Model
Structural Change and the Environment
Econometeric Implementation:
∆ POLLUTION = Scale + Composition + Technique
2it 0 1 it 2 it 3 it 0 it it
21 it it 2 it it
23 it it 4 it it
5 it it it
1 it 2 it it
SO2 _Emissionen INC INC KL TO
TO REL.KL TO REL.KL
TO REL.INC TO REL.INC
TO REL.KL REL.INC
HELSINKI OSLO
see Antweiler, Copeland, and Taylor (2001, A.E.R)5
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3 Endogenity Problems
Problems:
Trade (TO) is endogenous
Income (INC) is endogenous too
Regulation (Helsinki)?
Reasons for Endogenity (among others):
Measurement Errors
Omitted Variables Problem
Simultaneity TO, INC, HELSINKI
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1 2 4 Instruments
Instrument Trade Openess (1/2):
Taken from the trade literature, Gravity-Model(see Frankel und Romer (1999, A.E.R.))
e.g. bilateral distance, common border, etc.: - strong correlation with actual trade openess - not correlated with SO2-Emissions or the error term
2SLS Stage 1:
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ijt 0 1 ijt 2 it 3 jt
4 it jt 5 it jt 6 7
8 ijt it jt ijt
ln(TO ) ln(Dis tance ) ln(ActPop ) ln(ActPop )
ln(Area Area ) (LL LL ) CB CC
CB (LL LL )
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1 2 4 Instruments
Instrument für Trade Openess (2/2):
Actual vs. Constructed trade share
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1 2 4 Instruments
Instrument for Per Capita Income (1/2):
Taken from the growth literature:(see Mankiw, Romer und Weil (1992, Q.J.E.) and Frankel and Rose (2005, R.E.S.))
Conditional Convergence Hypothesis: - Lagged income - Investments and Depreciation - Population growth, Growth of labor productivity - additionaly from WIOD: share of high-skilled workers (HK)
2SLS Stage 1:
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0 1 2 3 it itititit it 1
GDP GDP Iln ln ln ln n g HK
Pop Pop GDP
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1 2 4 Instruments
Instrument for Per Capita Income (2/2):
Actual vs. Constructed income per capita:
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1 2 5 Results (Endogenous)
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1 2 5 Results (Instruments)
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IV vs. 2SLS
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1 2 6 Conclusions
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Conclusions and drawbacks:
Currently it is hard to conclude whether free trade is good or bad for the environment. But: postive trade induced composition effects (in this case positive is bad)
Final report will include as many as possible WIOD data with respect to the environmental satellites, the trade data, output data, labor files and especially country coverage
Problem: Physical capital stock data is hardly available for the time and country period covered by WIOD. One possible solution: Perpetual Inventory Mehtod (Caselli (2005)).
Problem: Endogenity of Regulation
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3Literature
Antweiler, Werner, Brian R. Copeland und M. Scott Taylor (2001): Is Free Trade Good for the Environment?, in: American Economic Review, Vol. 91, No. 4, S. 877-908.
Caselli, Francesoco (2005): Accounting for Cross-Country Income Differences, in: Handbook of Economic Growth, Vol. 1, No. 1, Chapter 9, S. 679-741
Frankel, Jeffrey A. und David Romer (1999): Does Trade Cause Growth?, in: American Economic Review, Vol. 89, No. 3, S. 379-399.
Frankel, Jeffrey A. und Andrew Rose (2005): Is Trade Good or Bad for the Environment?: Review of Economics and Statistics, Vol. 87, No. 1, S.85-91
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Managi, Shunsuke, Akira Hibiki und Tetsuya Tsurumi (2009): Does Trade Openess Improve Environmental Quality, in: Journal of Environmental Economics and Management, Vol. 58, No. 3, S. 346-363.
Mankiw, N. Gregory, David Romer und David N. Weil (1992): A Contribution to the Empirics of Economic Growth, in: Quarterly Journal of Economics, Vol. 107, No. 2, S. 407-437.
Staiger, Douglas und James H. Stock (1997): Instrumental Variable Regression with Weak Instruments, in: Econometrica, Vol. 65, No. 3, S. 577-586.
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Thank you for your attention!
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