Tariff Tariff x flexible labor law Excerpt from table 8 in Topalova (2010). The dependent variable is a consumption measure. 1.126** (0.545) -1.719* (0.922) Question 3 10.0 points possible (graded, results hidden) Above is the excerpt from table 8 in Topalova (2010)'s paper on the effect of trade liberalization in India. It shows effects on consumption of an increase in the variable "Tariff" in the first row, and of the interaction between "Tariff" and "flexible labor law" in the second row. For the definition of Tariff, remember Topalova's paper as discussed in class. You are not required to understand how exactly "interaction terms" work, just note that economists use interaction terms to capture how the main effect changes due to a change in another variable. In this case, "Tariff x flexible labor law" thus captures how the effect of "Tariff" as depicted in the first row changes when a district has flexible labor laws instead of inflexible ones. Which of the following is correct? Select all that apply. Tip: also remember the results of the paper as discussed in the lecture. "Tariff in the table above is really referring to a tariff cut. > > > ་ The first row shows that trade liberalization has a positive effect on consumption. The first row shows that trade liberalization has a negative effect on consumption. The second row shows that the positive effect of trade liberalization is less strong in districts with flexible labor laws. The second row shows that the negative effect of trade liberalization is less strong in districts with flexible labor laws. Overall, the table shows that trade liberalization has increased consumption but less so in districts with flexible labor laws. Overall, the table shows that trade liberalization has decreased consumption but less so in districts with strict labor laws. The policy message is that trade liberalization can increase consumption and strong labor laws are helpful because they make this effect stronger. The policy message is that trade liberalization can decrease consumption and strong labor laws are a problem because they make this effect stronger. Labor laws play a role in the effect of trade liberalization because they influence how fast the economy shifts resources in response to a trade shock. Labor laws play a role in the effect of trade liberalization because they influence how labor-abundant versus capital-abundant an economy is.