Reading Passage Question

The belief that friendly sociopolitical climates and low costs of government may be important (to competition among states to attract, keep, and enlarge high tech and manufacturing resources) has been reinforced by anecdotal evidence from business publications and business lobbyists who threaten to shift resources among states in response to costs or inconveniences imposed by state governments. Imbedded within the larger question of whether state policy initiatives affect the interstate movement of developmental resources is the more specific question of whether state-imposed environmental costs affect the interstate allocation of these resources. Do the actual or anticipated costs of complying with expensive environmental regulations in some states encourage producers to shift resources to other states? Extant evidence is mixed.

One set of scholars argues that interstate competition for economic development initiates a process analogous to Gresham's Law in which low regulatory costs in one state 'drive out' higher costs in competing states because states that impose higher marginal costs of government will lose in the competition for economic resources. Empirical tests of the Gresham's Law analogy have produced inconsistent results; however, recent research suggests that, while they have by no means supplanted traditional locational factors, these environmental costs-of-government are increasingly important determinants of plant location, especially of intraregional location choices among states with comparable extra-governmental characteristics.

Others argue that the environmental costs of government, like other costs of government, remain a trivial factor in industries' resource allocation decisions. Christopher Duerkson's extensive study for the Conservation Foundation (1981) found little effect of state regulation on plant siting decisions, corroborating Healy's finding two years earlier that environmental regulation had an insignificant impact on the location of industry. Moreover, industry publications have consistently ranked environmental regulation as one of the least important elements of 'business climate' influences on location decisions.

What is one to make of this contradictory evidence? To some degree it reflects inherent research design difficulties. Multicollinearity, for example, makes it extremely difficult to distinguish the attractiveness of environmental regulation from other aspects of 'business climate.' Likewise, the concentration of energy and other natural resources in states with relatively low costs of government make it difficult to distinguish the effects of these two potential influences. But the inherent design difficulties should not obscure the possibility that both sets of evidence are partially correct with the weight of evidence leaning towards Healy and Duerkson.

Solutions and Explanation

1. How does Gresham’s Law apply to plant siting decisions

1. Countries with differing regulation both benefit.
2. Factories and productive resources in the high regulatory countries suffer a disadvantage.
3. Regulations are effective for improving a nation’s standard of living.
4. The impact of regulation is difficult to measure because there are many factors.
5. Support for Healy and Duerkson’s view regarding plant siting locations.

2. If someone applied Gresham’s Law to trade between the high regulatory United States and low regulatory Mexico, what would the likely outcome be?

1. Both the United States and Mexico would benefit from open and fair trade and exchange of ideas.
2. Factories and productive resources in the United States would be pushed out of business.
3. Mexico would increase its regulation to meet up with the United States.
4. The United States would eliminate regulation to better compete with Mexico.
5. Mexico’s industrial base would be weakened by United States competition.

3. Which statement below most comprehensively states the central idea of this passage?

1. Anecdotal evidence from business publications and lobbyists is suspect.
2. The relative weight of critical factors in plant siting decisions is difficult to determine.
3. Environmental regulation is a major deterrent in plant siting decisions.
4. Anticipated and actual costs of environmental regulation differ.
5. Evidence concerning factors in plant siting decisions is consistent.

“The belief that friendly sociopolitical climates and low costs”- is a topic of the GMAT reading comprehension passage. This GMAT reading comprehension passage test the reading skills and efficiency of the students in the English language. The candidates must have adequate skills in comprehending the English language to crack this English GMAT reading comprehension. The GMAT Reading Comprehension Practice Questions help students to improve their reading and interpreting skills.

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