Investigation of the causality between participation in global value chains and CO₂ emissions between developed and developing countries

Abstract

The production and consumption activities are cross-border and therefore, it is important to understand the role of Global Value Chains (GVCs) in fulfilling a country’s specific climate commitments. This study examines the causal relationship between selected GVC indices and CO₂ emissions. We use the GVC position index, considered robust in comparison to the frequently used GVC participation index, for determining the impact on emissions. The forward and backward participation indices are considered in the analysis. The paper presents an analysis of 62 developing and developed economies from 1995 to –2018 using the Juodis A., Y. Karavias, and V. Sarafidis [2021. “A Homogeneous Approach to Testing for Granger non-Causality in Heterogeneous Panels.” Empirical Economics 60 (1): 93–112] approach, which is an improvement over the traditional approaches to analysing causality. The results show that the overall position in GVCs positively affects CO₂ emissions for developing countries but a causal relationship does not exist for the developed countries. The developed countries attain a higher participation index but a lower position index. On the other hand, developing countries with fewer stringent environmental regulations may opt for an upstream position (more export-oriented) and by design specialize in more pollution-intensive industries. Noteworthy, production-based emissions in developed countries are reduced because of an increase in imports of emission-intensive products from developing countries.

KEYWORDS:

• Climate change
• CO₂ emissions
• global value chains
• position index

JEL Classifications:

• Q54
• Q56
• F14

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 United States Environmental Protection Agency (2023). Available online at https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data

2 World Bank (2019). World Development Report 2020: Trading for development in the age of global value chains. The World Bank.

3 Desa, U. N. (2018). The sustainable development goals report 2018. United Nations.

4 Regional Comprehensive Economic Participation (RCEP)

5 United Nations (1998). “Kyoto Protocol to the United Nations Framework Convention on Climate Change.” United Nations Framework Convention on Climate Change.

6 Correlation between the regressor and error term as a result of the demeaning process that subtracts each individual's mean value of X and Y from the corresponding variable is called Nickell bias (Nickell 1981).

7 One important point to be mentioned here is that the interpretation of the coefficients would be different for the explanatory variables because some variables are in log form while others are at level. Hence, to interpret the coefficients as percentage change, we need to exponentiate the coefficient then subtracts one from the number and multiply it by 100.

8 A positive value indicates that country takes upstream position in GVC. A negative value shows that country takes downstream position in GVC.

9 For details, please refer Friedlingstein et al. (2020)

10 For details, please refer Casella et al. (2019)

11 For details, please refer Feenstra, Inklaar, and Timmer (2015)

12 For details, please refer UNCTAD (2022).

13 For details, please refer World Bank (2021).