Three Essays on Environmental Economics and International Trade Patrick Mclaughlin Clemson University, [email protected]
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Clemson University TigerPrints All Dissertations Dissertations 5-2008 Three Essays on Environmental Economics and International Trade Patrick Mclaughlin Clemson University, [email protected] Follow this and additional works at: https://tigerprints.clemson.edu/all_dissertations Part of the Economics Commons Recommended Citation Mclaughlin, Patrick, "Three Essays on Environmental Economics and International Trade" (2008). All Dissertations. 204. https://tigerprints.clemson.edu/all_dissertations/204 This Dissertation is brought to you for free and open access by the Dissertations at TigerPrints. It has been accepted for inclusion in All Dissertations by an authorized administrator of TigerPrints. For more information, please contact [email protected]. THREE ESSAYS ON ENVIRONMENTAL ECONOMICS AND INTERNATIONAL TRADE A Dissertation Presented to the Graduate School of Clemson University In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy Applied Economics by Patrick Arthur McLaughlin May 2008 Accepted by: Daniel Benjamin, Committee Chair Scott Baier Bentley Coffey Robert Tollison ABSTRACT This dissertation addresses the broad topic of appropriate metrics, proxies, and estimation methods in environmental economics and international trade research, presented as three separate studies. The first, entitled, “Something in the Water? Testing for Groundwater Quality Information in the Housing Market,” examines how informed real estate markets are with respect to groundwater quality by using a couple of different proxies for groundwater quality in a hedonic framework. This research topic has potentially suffered from imperfect proxies and incomplete information, which I test. In the second, entitled, “Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth in Regionalism,” I address a topic in international trade that has consistently suffered from endogeneity biases in estimations: the effect of economic integration agreements on bilateral trade flows. The third study, called “Trade Flow Consequences of the European Union’s Regionalization of Environmental Regulations,” synthesizes the fields of environmental economics and international trade. I introduce a new proxy – survey data – that does not rely on environmental outcomes and thus hopefully avoids endogeneity. Controlling for any possible interaction effect between environmental regulation stringency and European Union membership, I estimate the effect of increasing environmental regulation stringency on trade flows to and from three groups of countries: high income countries, low income countries, and all countries. ii ACKNOWLEDGMENTS I wish to acknowledge all my committee members’ assistance in my development as an economist in general and in their guidance in producing this manuscript. In particular, I thank: Dan Benjamin for tirelessly subjecting my work to sound scientific analysis; Scott Baier for giving me my first good paper idea; Bentley Coffey for his absolute genius in turning abstract ideas into structural and testable models; and Bob Tollison for keeping me focused on the fundamentals and encouraging me. Chapter 2 of this manuscript was partially produced at the Property and Environment Research Center in Bozeman, Montana, whose assistance I gratefully acknowledge. Chapter 3 stems from a paper coauthored with Scott Baier, Jeffrey Bergstrand, and Peter Egger, that has not yet been published. Their contributions are acknowledged, and for publication purposes, we are all coauthors on the paper. iii TABLE OF CONTENTS Page TITLE PAGE .................................................................................................................... i ABSTRACT ..................................................................................................................... ii ACKNOWLEDGMENTS .............................................................................................. iii LIST OF TABLES .......................................................................................................... vi LIST OF FIGURES ...................................................................................................... viii CHAPTER I. INTRODUCTION ......................................................................................... 1 Proxies and estimation issues in environmental economics .................... 1 Proxies and estimation issues in international trade ................................ 3 Environmental economics and international trade ................................... 4 II. SOMETHING IN THE WATER? TESTING FOR GROUNDWATER QUALITY INFORMATION IN THE HOUSING MARKET ................ 6 Introduction .............................................................................................. 6 Background .............................................................................................. 9 Methods and Data .................................................................................. 19 Results .................................................................................................... 28 Conclusions ............................................................................................ 34 References .............................................................................................. 37 III. DO ECONOMIC INTEGRATION AGREEMENTS ACTUALLY WORK? ISSUES IN UNDERSTANDING THE CAUSES AND CONSEQUENCES OF THE GROWTH IN REGIONALISM ............. 50 Introduction ............................................................................................ 50 Determinants of bilateral trade flows and bilateral economics integration agreements ....................................................................................... 54 Simultaneous market for trade flows and EIAs ..................................... 66 iv Table of Contents (Continued) Estimating the effects of various EIAs on trade flows using panel data ................................................................................................... 72 Implications for understanding the “latest wave” of regionalism ......... 87 References .............................................................................................. 90 IV. TRADE FLOW CONSEQUENCES OF THE EUROPEAN UNION’S REGIONALIZATION OF ENVIRONMENTAL REGULATIONS .. 106 Introduction .......................................................................................... 106 Background .......................................................................................... 107 Model ................................................................................................... 113 Econometric issues with the gravity equation ..................................... 119 Data ...................................................................................................... 125 Results .................................................................................................. 126 Conclusion ........................................................................................... 131 References ............................................................................................ 134 V. CONCLUSION .......................................................................................... 146 APPENDICES ............................................................................................................. 147 A: Countries in dataset of chapter three .......................................................... 148 B: Endogeneity from environmental regulation stringency variables ............ 150 C: Modeling an ordinal signal on a latent variable ......................................... 153 v LIST OF TABLES Table Page 2.1 Chronology of site events ............................................................................ 44 2.2 Null hypotheses ............................................................................................ 21 2.3 Definition of variables ................................................................................. 45 2.4 Summary Statistics, Period 1, Years 1995 - 2002 ....................................... 46 2.5 Summary Statistics, Period 2, Years 2003 - 2006 ....................................... 47 2.6 Quantile regressions at median .................................................................... 48 2.7 Net effects of read_nofilt and swca ............................................................. 49 3.1 Typical cross-section gravity equation coefficient estimates ................................................................................................. 96 3.2 Theory-motivated cross-section gravity equations with country fixed effects ...................................................................... 97 3.3 Economic integration agreements ................................................................ 98 3.4 Panel gravity equations in levels using various specifications.......................................................................................... 99 3.5 Panel gravity equations with bilateral fixed and country-and-time effects ...................................................................... 100 3.6 Panel gravity equations with bilateral fixed and country-and-time effects with GDP restrictions .................................. 101 3.7 First-differenced panel gravity equations with country-and-time effects ...................................................................... 102 4.1 Countries in dataset ...................................................................................