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Structural Change and the Environment. Structural Change and the Environment: An Application to the WIOD Database Deliverable 7.2 by Andreas Löschel , Sascha Rexhäuser and Michael Schymura. WIOD Consortium Meeting, Seville , 25th – 28th June 2011. 5.

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wiod consortium meeting seville 25th 28th june 2011

Structural Change and the Environment

Structural Change and the Environment: An Application to the WIOD DatabaseDeliverable 7.2byAndreasLöschel, Sascha Rexhäuserand Michael Schymura

WIOD Consortium Meeting, Seville, 25th – 28th June 2011

5

slide2

Structural Change and the Environment

Content

Introduction

1

2

Data and Econometric Model

Endogenity Problems

3

4

Instruments

Results

Results

5

6

6

Conclusions and Drawbacks

slide3

Structural Change and the Environment

Introduction

1

  • 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.)
slide4

Structural Change and the Environment

Data and Econometric Model

2

  • 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)
slide5

Structural Change and the Environment

1

2

Data and Econometric Model

Econometeric Implementation:

∆ POLLUTION = Scale+Composition+Technique

see Antweiler, Copeland, and Taylor (2001, A.E.R)

5

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Structural Change and the Environment

Endogenity Problems

1

2

3

  • 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
slide7

Structural Change and the Environment

1

2

3

Instruments

4

  • 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:
slide8

Structural Change and the Environment

1

2

3

Instruments

4

Instrument für Trade Openess (2/2):

Actual vs. Constructed trade share

slide9

Structural Change and the Environment

1

2

3

Instruments

4

  • 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:
slide10

Structural Change and the Environment

1

2

3

Instruments

4

Instrument for Per Capita Income (2/2):

Actual vs. Constructed income per capita:

slide11

Structural Change and the Environment

1

2

3

Results (Endogenous)

4

5

slide12

Structural Change and the Environment

1

2

3

Results (Instruments)

4

5

IV vs. 2SLS

slide13

Structural Change and the Environment

1

2

3

Conclusions

4

5

6

  • 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
slide14

Structural Change and the Environment

3

Literature

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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Structural Change and the Environment

3

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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Structural Change and the Environment

3

Thank you for your attention!

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