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Institute for International Integration Studies IIIS Discussion Paper - page 39 / 41

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Temperature, Economic Freedom and Government Effectiveness

The temperature, economic freedom and government efficiency variables are sourced from the Sustainability and Global Change dataset assembled by Hamilton et al. (2002). This database brings together a wide range of other data sources available elsewhere on the web. 28

The temperature variable, from New et al. (1999), measures the average annual temperature between 1961 and 1990 for each importing and exporting country. Although, the data does not correspond to the time period of the dataset used in this paper, global temperatures have not changed considerably despite global warming and it is unlikely that relative temperatures between countries have changed.

The economic freedom variable is based on the Heritage Foundation’s Index of Economic Freedom (Miles et al., 2006). Countries are scored on an annual basis on a number of headings related to their level of economic freedom. The variable is measured on a scale of 1 to 5, lower scores indicate higher levels of economic freedom and lower government intervention.

Government effectiveness measures the quality of public service prevision. Kaufman et al. (1999) base their variable on a database of three hundred governance indicators. A higher score implies more effectiveness government prevision of services.

Non-Tariff Barriers

The primary source of data on NTBs is the Australian Productivity Commission’s (APC) trade restrictiveness index (TRI), an augmented frequency index as described in section 2.2. The TRI measures the level of protection imposed by each country on imports of services on a scale of 0 (liberal) to 1 (restrictive). The APC provides two sets of TRIs. The first measures the restrictions imposed on the operation of domestic firms (such barriers are considered to be non-discriminatory). The second measures all restrictions that hinder the establishment and operation of foreign service providers (discriminatory and non-discriminatory measures). The difference between the two indicates the level of discrimination against foreign firms and this measure is used in this paper.

TRIs are provided for a number of service sectors, some of which broadly match the four sectors covered in OECD (2003). For total services imports, the average of all the sectoral TRIs is used. As the TRI country coverage is not a perfect match for the OECD services database, a coverage ratio based on Hoekman (1995) is used to supplement the TRI database. The coverage ratio (CR) sums up the number of GATS commitments of each country. The more commitments signed up by a country, the more liberal it is considered. To equate this measure to the TRI, the ratio is subtracted from one (1-CR) to give a scale of 0 (liberal) to 1 (restrictive). The correlation between the TRI and (1-CR) is 0.62. Although this may seem quite low, the country coverage of the TRI and the OECD database are quite close, the coverage ratio is only used for a few countries. The NTBTotal variable is primarily based on the TRI.

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Available at http://www.uni-hamburg.de/Wiss/FB/15/Sustainability/Models.htm.

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