4. A researcher interested in examining the impact of immigration on trade proposes the following model:...

  

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4. A researcher interested in examining the impact of immigration on trade proposes the following model: Trade, Bo + B₁Immi, + 3₂GDP + B3Disti + u Trade,, Log value of trade flows (imports plus exports) between countries i and j. Imm= Log number of migrants flowing between countries i and j. GDP = Log sum of GDP for countries i and j Distij Log distance (in miles) between countries i and j. = = (1) a. Estimating the model above yields ₁ 0.12 and SE(3₁) = 0.03. Interpret the coefficient on log migration. What is one reason why migration would cause trade flows to increase? b. A critic of this study argues that the result in a should not be believed as immigration between two wo countries that trade countries is likely to be affected by trade between countries. Theoretically, heavily with one another are more likely to have stronger cultural and diplomatic ties, which should lower the cost of migration between these countries. An plausible model for migration is given by: Imm₁ = 0 + Trade +2GDP + 73 Disti, +Y4Imm10,, + uz Imm 10,,, is defined as log migration between countries i and j ten years ago, while all other variables are defined above. (2) Assuming that models 1 and 2 are correctly specified, will the OLS estimates from either regression be consistent? Why or why not? Support your answer by deriving an expression for Cov(Imm, u₁) and Cov(Trade, u₂). c. Which of the equations above is identified: neither, equation 1, equation 2, or both? d. Describe the steps you would take to consistently estimate the identified equation. e. Come up with another explanatory variable that you could add to one of the equations so that the system (equations 1 and 2) would be completely identified. Justify including this variable and briefly describe how you would consistently estimate all parameters in the system 4. A researcher interested in examining the impact of immigration on trade proposes the following model: Trade, Bo + B₁Immi, + 3₂GDP + B3Disti + u Trade,, Log value of trade flows (imports plus exports) between countries i and j. Imm= Log number of migrants flowing between countries i and j. GDP = Log sum of GDP for countries i and j Distij Log distance (in miles) between countries i and j. = = (1) a. Estimating the model above yields ₁ 0.12 and SE(3₁) = 0.03. Interpret the coefficient on log migration. What is one reason why migration would cause trade flows to increase? b. A critic of this study argues that the result in a should not be believed as immigration between two wo countries that trade countries is likely to be affected by trade between countries. Theoretically, heavily with one another are more likely to have stronger cultural and diplomatic ties, which should lower the cost of migration between these countries. An plausible model for migration is given by: Imm₁ = 0 + Trade +2GDP + 73 Disti, +Y4Imm10,, + uz Imm 10,,, is defined as log migration between countries i and j ten years ago, while all other variables are defined above. (2) Assuming that models 1 and 2 are correctly specified, will the OLS estimates from either regression be consistent? Why or why not? Support your answer by deriving an expression for Cov(Imm, u₁) and Cov(Trade, u₂). c. Which of the equations above is identified: neither, equation 1, equation 2, or both? d. Describe the steps you would take to consistently estimate the identified equation. e. Come up with another explanatory variable that you could add to one of the equations so that the system (equations 1 and 2) would be completely identified. Justify including this variable and briefly describe how you would consistently estimate all parameters in the system

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a The coefficient on log migration indicates that a one percent increase in migration would lead to ... View the full answer