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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 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

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  1. 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

  2. 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

  3. 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.)

  4. 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)

  5. 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

  6. 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

  7. 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:

  8. Structural Change and the Environment 1 2 3 Instruments 4 Instrument für Trade Openess (2/2): Actual vs. Constructed trade share

  9. 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:

  10. Structural Change and the Environment 1 2 3 Instruments 4 Instrument for Per Capita Income (2/2): Actual vs. Constructed income per capita:

  11. Structural Change and the Environment 1 2 3 Results (Endogenous) 4 5

  12. Structural Change and the Environment 1 2 3 Results (Instruments) 4 5 IV vs. 2SLS

  13. 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

  14. 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 14

  15. 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. 15

  16. Structural Change and the Environment 3 Thank you for your attention! 16

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