Problem Set 2
Total Points: 100
Use the Turnitin links provided. First, convert your Word, STATA (log files), excel worksheets, and any other file you worked with, to pdf files. Second, compile all your different pdf files into a unique pdf file. Use Adobe Acrobat, which allows merging different pdf files into one file. Finally, name the pdf file "YOUR_FIRST_AND_LAST_NAME".
Note: All data files are provided in STATA and EXCEL. The dataset in STATA contains the variables’ description (type “describe” in the command window). Get familiar with the structure of the data and the content of the dataset. Make sure you understand the information contained in each variable.
QUESTION 1 (Lab Work III). Chilean Exporters. 10 POINTS. Use “data-set-PS2-Q1.dta” to explore facts about exporters in Chile. These data are establishment-level data from the Chilean Annual Manufacturing Survey (ENIA), for the year 2000. You will document two facts: Fact 1) Exporters are larger than non-exporters; Fact 2) For most exporters, export activities are done at a low intensity. Attach the LOG file with your work.
The goal of this question is to get students to construct their own empirical evidence to clearly convey an argument to support a theory or a policy. Additionally, the question will get students familiar with firm-level data.
Fact 1
a) 5 points. First, using the command “gen”, construct a dummy variable that equals 1 if the establishment has positive exports and zero if it has zero exports. Name it “d_exporter”. Second, using the command “gen”, construct export intensity as export sales divided by total sales of the establishment. Name this variable “export_intensity”. Finally, construct the log of total sales and the log of total employment. Name these variables, respectively, “log_sales”, and “log_employment”.
b) 2.5 points. Use the command “kdensity” to plot the log of sales for exporters and non-exporters, respectively, in the same graph. Repeat the procedure for log of employment. You should have two graphs. Interpret each graph.
Fact 2
We will first restrict the sample to exporters only: keep observations where “d_exporter = 1” using the command “keep if”.
c) 2.5 points. Use the command “kdensity” to plot “export_intensity”. Interpret. Where in the figure do you observe most of the establishments?
QUESTION 2. Trade Policy. 10 POINTS (2.5 points each). Choose one and only one answer.
1. If a good is imported into (large) country H from country F, then a tariff in country H
a. Raises the price in country H and cannot affect its price in country F.
b. Lowers the price of the good in both countries.
c. Lowers the price of the good in H and could raise it in F.
d. Raises the price of the good in H and lowers it in F.
e. None of the above.
2. A lower tariff on imported steel would most likely benefit
a. Foreign producers at the expense of domestic consumers.
b. Domestic manufacturers of steel.
c. Domestic consumers of steel.
d. Workers in the steel industry.
e. None of the above.
3. The main redistribution effect of a tariff is the transfer of income from
a. Domestic producers to domestic buyers.
b. Domestic buyers to domestic producers.
c. Domestic producers to domestic government.
d. Domestic government to domestic consumers.
e. None of the above.
4. An important difference between tariffs and quotas is that tariffs
a. Raise the price of the good.
b. Generate tax revenue for the government.
c. Stimulate international trade.
d. Help domestic producers.
e. None of the above.
QUESTION 3. Intertemporal trade. 25 points. [HARD]. Consider a two-period economy. The representative agent has preferences represented by a utility function of the form . The agent is endowed with units of the good in period 1 and y2 units of the good in period 2. Let denote the return on a one-period bond, and denote the quantity of bonds.
a. 2 points. Write out the budget constraint for period 1 and a separate budget constraint for period 2.
b. 2 points. Combine the two per-period budget constraints to form the intertemporal budget constraint.
c. 4 points. Write out the consumer’s maximization problem (maximize utility subject to the intertemporal budget constraint. Take the first order conditions and derive the Euler Equation. [Hint: the Euler equation relates marginal utility in the two periods to 1+ the interest rate.]
d. 4 points. Derive the consumer’s choice of consumption in the first period, , consumption in the second period, , and the amount of borrowing or lending b, as a function of y1, y2, and r.
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