Mathew asked in Social ScienceEconomics · 4 weeks ago

What control variables are useful to have for international trade and environmental regulation? ?

I am doing a report on whether environmental regulation has an effect on international trade, using a difference-in-differences method, looking at the EU Industrial Emissions Directive. I'm using the UK and Australia as my treatment and control groups respectively. However, I am unsure as to which control variables I should have in my equation. So far I have CPI and capital intensity. Does anyone have any suggestions as to which variables should be included to isolate the effects of the regulation on trade? 

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  • Oiy
    Lv 5
    4 weeks ago
    Favorite Answer

    CPI and capital intensity cannot be control variables. They are mostly endogenous variables. Control variables such as Pigouvian taxes, a blacklist of an environmental violation, carbon trade quota, etc should be used.

    • Mathew4 weeks agoReport

      Many thanks for your answer! Could exchange rate fluctuations also be a potential control variable or would that be endogenous also?

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