midterms Flashcards
What is the key thing to remember about comparative advantage?
who has the lowest opp cost of producing x good/service has the comparative advantage
is the porter hypothesis always referring to the same thing? if not, what can it refer to?
environmental performance and business performance are very different goals. Business performance implies improvements in revenue, profit.
imposing stricter environmental regulations leads to environmental innovation that improves environmental performance, not necessarily business
it improves business performance through the channel of efficiency - claiming that reducing pollution increases productivity of the plant
weak - improves environmental innovation
strong - “” business “”
How can Porter’s hypothesis support the idea that a firm’s production cost can be lowered by environmental policy?
Environmental policy could increase abatement productivity, resulting in a lower amount of pollution. This results in a lower $ amount of tax the firm has to pay, reducing the firms production cost.
What sort of environmental innovation takes place to increase abatement productivity?
could you find an example of these innovations (within the syllabus)?
learning by doing; induced innovation
What is the key mathematical relationship that should hold if the Porter’s hypothesis holds?
P.H. essentially says that environmental policy encourages innovation, which improves productivity thereby reducing inefficiency
the representation for policy is the price which pollution is taxed, i.e. Pz
weak claim: Az= Az(Pz)
strong claim: A=A(Pz)
Reference the slides for the canonical pollution model. Explain what the aim of the function is, what it’s components are, how it accounts for pollution
class 3, slide 7
Take a random paper you’ve read from any of the previous weeks. Is the experiment conducted a quasi-experiment? Why or why not?
Why couldn’t a randomised experiment have been conducted in this case? Could it?
Quasi-experiments are research where the independent variable was assigned by exogenous factors that are not correlated with neither the dependent not indept. variable. Hence, it is as good as random.
Take any random input-output table from the papers that we went through in class.
Identify on the input-output table (if possible) if not underline the steps needed to obtain:
1. The matrix of direct requirements
2. the matrix of total requirements
3. Total sales (take any industry)
4. % of direct / how much direct revenue does input industry make from output industry?
5. What is the Value-add/factor input
(editing)
Think of an analysis that you are likely to be misled into thinking that the input-output table can assist you with, but it actually can’t
for a specific country’s output table, the sales for the agriculture industry is much higher than the sales for the financial services industry - Does this imply that a higher % of the country’s GDP is from agriculture than financial services?
as it turns out you can?
What is the definition of an input-output coefficient (a)? Take an i/p-o/p table, find z matrix, f matrix. Calculate the x matrix and find the a matrix.
definition: the dollars of an input required to produce a dollar of an output
if you need a way to memorise: a<L, so a can’t give you the full picture (total requirements), but it can give you the start (direct requirements)
Can you find the Leontif inverse from the input output table?
you can find the inverse, but you cannot directly read it off the table
you need to invert the matrix for that
final output, intermediate output
what does the pollution havens hypothesis state?
Polluting industries move to regions with weak environmental regulation
haven from a lack of regulation
If we wanted to test the Pollution Haven hypothesis, and we set up a experiment using the Clean Air Act:
- w stricter env regulation, the imports of dirtier goods increase.
Is this proof of the PHH?
tldr: no
PHH says that polluting industries will move toward countries w weaker env regulations
To see this change, the countries w weaker regulation should start to have a compositional shift towards increased emissions
What does agglomeration spillover mean?
a firm becomes more productive with more nearby firms
Does having agglomeration spillovers mean higher profits?
i.e. more firms -> higher productivity -> higher profits
Not necessarily. The higher profits will attract more labour that are highly skilled, bidding up the relative wages of workers, driving up costs
it depends on which wins: the increase in relative prices of FOP, the decrease in costs
What does Dutch Disease, and why does it occur? What is the long-term impact?
discovering natural resources reduces exports and GDP
international and national demand for that resources causes a sudden boom
demand for X country’s currency»_space; supply, causing any good from X country to become more expensive
other sectors sink, workers stop learning by doing, overall productivity falls
Pick one of the papers that he has gone through during class. Read the table and ask yourself the following questions:
- basic: what is dependent, what is independent, what is constant, are the results significant, what does B1 mean?
- take one of the variables to be omitted. Hypothetically, what are the effects of omitting this variable?
- assuming you couldn’t measure one of the variables, think of an instrumental variable that can replace it. Give a reason why.
- Write the regression equation as its reduced form.
- think of another way regression can be used
(write the papers that you have gone through here)
for 3: IV variables must be correlated to the variable which you seek to measure, but not to the error term
for 4: use another greek letter (that hasn’t been used) for the coefficient of the reduced form
for 2: omitted variables are terms that correlate to the independent variable, but are left in the error term, so they overstate/understate the effect. Arguably, the d correlates to ind, so om var correlates to ind var too
What is panel or longitudinal data? What is panel fixed effects? Look at an example on the slides and explain the motive of panel fixed effects
panel: repeated observations for the same unit across a period of time
FE: accounting for all time-invariant (observed or not) omitted variables which are assumed to stay constant by controlling for a larger category
What are the two methods we can use to control for omitted variables bias, and their key differences?
- Instrumental Variables
- Panel Fixed Effects
IV: estimate the effect of the independent on the dependent variable through another variable that is correlated with the dependent but not the error.
Diff 1: They differ in the algebra.
IV: 2 stage least squares equation.
PFE: “an additional variable”
Diff 2: They differ on the data necessary to use the techniques.
IV: one variable that *not correlated to error term, and be correlated to indep. var
PFE: being intentional about the data you collect, i.e. less data but more relevant might be better
Right after regulation is tightened in the U.S., a firm in a polluting industry (e.g. car manufacturing) closes down their plant in the U.S. and sets one up in Mexico. Can this confirm the Pollution Havens hypothesis? If it doesn’t, propose
an alternative reason for the move?
No. The firm could have moved because of the proximity-concentration hypothesis.
PC-H states that it is beneficial to replicate the production process in different locations. Being closer to consumers, the firm gets to save on trade/transport costs while increasing efficiency with larger plants.
The plant in the U.S. could have been shut down to adapt to shifting demand.
What is the difference between Horizontal and Vertical FDI?
Horizontal: many affiliates in other countries replicating the production process
Vertical: different steps in the production chain happening in different countries
The CO2 emission per output of a firm’s production plant decreases greatly after it was acquired by a foreign multinational. Can this confirm that the plant has gotten cleaner?
Not necessarily. How clean a firm is also depends on how much output is emitted.
What is the criteria for instrumental variables?
Relevance: the instrumental variable has to be strongly correlated with the independent variable
Validity: cannot be correlated to the error term
