Friday Abstract Round-Up

Does Trade Openness Improve Environmental Quality? (JEEM)

The literature on trade openness, economic development, and the environment is largely inconclusive about the environmental consequences of trade. This study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique. We find that whether or not trade has a beneficial effect on the environment varies depending on the pollutant and the country. Trade is found to benefit the environment in OECD countries. It has detrimental effects, however, on sulfur dioxide (SO₂) and carbon dioxide (CO₂) emissions in non-OECD countries, although it does lower biochemical oxygen demand (BOD) emissions in these countries. We also find the impact is large in the long term, after the dynamic adjustment process, although it is small in the short term.

Justin's Take Away: In OECD countries, where there usually are strong private property rights, openness to trade increases environmental quality. In non-OECD countries, which usually have poor property rights, pollution tends to be a bigger problem. On the environmental front, I think this paper might hurt the free trade movement while helping the libertarian movement. The two are not mutually exclusive, but it is a rather rare feat to help one while hurting the other.

The Effects of Consumer Directed Health Plans on Health Care Spending (NBER)

We use unique data from an insurer that exclusively offers high-deductible, "consumer-directed" health plans to identify the effect of plan features, notably the spending account, on health care spending. Our results show that the marginal dollar in the spending account is entirely spent on outpatient and pharmacy services. In contrast, inpatient and out-of-pocket spending were not responsive to the amount in the spending account. Our results represent the first plausibly causal estimates of the components of consumer-driven health plans on health spending. The magnitudes of the effects suggest important moral hazard consequences to higher spending account levels.