Does the participation in global value chains promote interregional carbon emissions transferring via trade? Evidence from 39 major economies

Highlights

• This paper discusses the impact of participation in global value chains (GVCs) on carbon emissions transferring via trade (CTT).

• As the degree of participation in GVCs rises, the CTT would also increase.

• This paper establishes an econometric panel data model to investigate the CTT change.

Abstract

On the basis of building the models measuring the degree of participation in global value chains (GVCs), this paper establishes an econometric panel data model to investigate the impact of participation in GVCs on the carbon emissions transferring via trade (CTT) in 39 major economies, and it articulates relevant environmental governance policies that potentially achieve emissions reduction targets. Results indicate that, from a global perspective, as the degree of participation in GVCs rises, the CTT would also increase, and a series of tests showed that the robustness of this argument was not interfered with by endogenous issues. The growth of the CTT from the continuous deepening of participation in GVCs could be partially counterbalanced by reductions in emissions through relevant policies such as the increase of energy intensity, the optimization of industrial structure, and the improvement of residents’ awareness of emission reduction. Thus, we should discuss emissions reduction obligation assignments from the perspective of participation in GVCs, and relevant measures on emission reduction should also be placed on optimizing the division of participation in GVCs for each country, so as to lessen local economic dependence on energy intensive products. Overall, this paper could provide more comprehensive insight to enhance our understanding of the determinants driving the changes in the CTT in response to global climate change.

Introduction

Actively reducing carbon emission to cope with global climate change has become a common goal in countries around the globe (Chang et al., 2019; Martin and Saikawa, 2017). From the formulation of the United Nations framework convention on climate change to the implementation of the Kyoto protocol and to entry into the Paris agreement, all these agreements demonstrated the determination of countries to jointly tackle global climate change. However, from the perspective of economic cost in emissions reduction, the implementation of these agreements would significantly increase financial burden on the regions (Gillingham and Stock, 2018; Yang et al., 2018; Zhang et al., 2020). More seriously, along with the deepening of economic linkages between countries, because of close trading partnerships, part of regions may circumvent their own reduction tasks and evade some responsibilities of emissions reduction. In particular, since the 1980s, the production processes of enterprises were divided into different “processes” due to the “profit-seeking” behavior of multinational corporations in allocating resources, resulting in the formation of the GVCs characterized by production fragmentation (Alfaro et al., 2019). According to the theory of comparative advantage, with the development of globalization, products are being distributed to different countries from design and development, production and manufacturing to marketing and after-sales services (French, 2017; Shankar, 2020). Thus, developed economies tend to be in the high-technology and high-value-added links of GVCs, and the reverse is true for the developing countries. Consequently, while trade provides a mechanism to facilitate the rapid flow of resources such as capital and energy between developed and developing countries, the rapid growth of economic aggregate in various regions was also accompanied by the increasing scale of foreign trade (Maciejewski and Wach, 2019; Steingress, 2019).

However, with the booming development of global economic integration, the trend in the geographic separation of consumers and emissions emitted during the production of consumable items is increasingly evident, resulting in accelerating inter-regional flow of carbon emissions with an average annual growth rate of approximately 5% (i.e., global carbon-leakage including emissions transferring via exports trade, EET for short, and emissions transferring via imports trade, EIT for short) (Xu and Dietzenbacher, 2014; Zhong et al., 2018). For each individual region, while the rapid growth of international trade due to the participation in GVCs brings enormous economic benefits, it also brings negative affect such as a series of serious environmental impacts. In this context, relevant issues on inter-regional CTT resulted from domestic and foreign demand of each economy have attracted extensive attention of government departments and scholars. Thus, the main focus of energy conservation and emission reduction can no longer be confined to local domestic production and consumption (Liu et al., 2016, 2020b; Meng et al., 2018b); considering the impact of the CTT on regional emission accounting and reduction obligation assignments, strengthening targeted governance on the CTT has become the key to facilitate the achievement of global emission reduction targets. For this purpose, the key issue we need to answer is what impacts the participated in GVCs would have on the CTT. In other words, does participation in GVCs increase or decrease the CTT at the global level? This paper attempts to solve the above issue by discussing the impact of GVCs on the CTT in 39 major economies from 1995 to 2011, so as to better articulate targeted global environmental governance policies including the attribution of carbon emission reduction goals to causal processes operating in GVCs.

For each country, to promote low-carbon growth of regional economy and implement effective regional emission reduction, how to participate in GVCs and mitigate the impact of international trade on imputed responsibilities in emissions has become the focus of attention from the related stakeholders. Therefore, during the past decades, the literature on the above mentioned studies have formed the following two relatively independent research lines.

The first line is the GVCs and relevant issues. With the rapid evolution of the international division of labor, this topic has received considerable research attention. Previous studies primarily explored how to quantify the degree of participation in GVCs from the perspective of vertical specialization (Hummels et al., 2001), import to produce and import to export (Baldwin and Lopez-Gonzalez, 2015). However, it should be noted that the above measurement methods were primarily based on the perspective of supply chain trade and cross-border production network, and there existed a series of issues on recursive concepts with pervasive double counting. To solve these deficiencies, two primary measures consisting of factor content including a range of production factors (Fally, 2011; Antràs et al., 2012; Antràs and Chor, 2013, Koopman et al., 2010; Tian et al., 2019; Wang et al., 2017a, 2017b; Ding et al., 2019) and value-added trade (Daudin et al., 2011; Johnson and Noguera, 2012; Kee et al., 2016; Ito et al., 2020) proposed upon these measures in the prior literature have gradually become the focus of attention. With the improvement of the above measurement methods, previous studies began to pay more attention to analyzing the factors influencing the participation in GVCs. For instance, Hagemejer and GhodsiI (2014), Balié et al. (2019), and Chor et al. (2021) investigated the impacts of transaction cost, trade policy, capital flow, and enterprise productivity. Moreover, some scholars further discussed the economic and social effects generated by the participation in GVCs in a region (Ju and Yu, 2015; Shen et al., 2019; Jangam and Akram, 2019; Fronczek, 2020; Yanikkaya et al., 2020).

The second line is the CTT and the relevant issues. A review of relevant literature showed that, using the input-output (IO) models, a mass of scholars primarily measured the CTT and investigated the related emission reduction policies from the perspective of global scale (Chen and Chen, 2011; Meng et al., 2018b; Liu et al, 2020b), national scale (Arce et al., 2016; Escobar et al., 2020; Wang et al., 2018), and city scale (Feng et al., 2014; Mi et al., 2016, 2019; Zhong et al., 2020), respectively. Additionally, by employing social network analysis, structural decomposition methods, and econometric regression models within an IO framework, respectively, a number of previous studies examined the impacts of some important factors (i.e., emission intensity, demand for final products, energy use structure, and industrial structure) on the CTT, and thus developed emission reduction policies (Jiang et al., 2019; Shahbaz et al., 2017; Xu and Dietzenbacher, 2014; Zheng et al., 2020).

To sum up, previous studies have carried on thorough discussions on these two lines and the relevant issues. Regrettably, however, from a global perspective, research on the GVCs and the CTT is still in the state of "parallel but rarely overlapping". Notably, parts of prior research (Wang et al., 2020a; Assamoi et al., 2020) explored the impact of participation in GVCs on the changes of regional carbon emissions that resulted from domestic fossil-fuel consumption, but an in-depth discussion on the quantitative impact of participation in GVCs on the CTT in a unified framework has not been done earlier, which may prevent a better understanding of the determining factors of the change in the CTT, thereby handicapping the fair assignments of emissions to regions and ultimately impairing the formulation of global environmental governance measures.

In fact, prior studies found that the rapid development of the GVCs extended the production possibility frontier across regions, thereby accelerating the process of international division between consumable items’ production and consumption (Meng et al., 2018a; Gautam et al., 2020). In particular, for consumable items’ production, there existed regional and sectoral differences in technical complexity of heterogeneous production processes during the participation in GVCs (Wang et al., 2019a; Assamoi et al., 2020). As a result, the volume of energy consumption is bound to vary considerably in different regions. Furthermore, as for consumable items’ consumption, the energy consumption required by intermediate consumption and final consumption would also vary in different regions due to the different degree of participation in GVCs (Ito et al., 2020; Wang et al., 2020a). Consequently, the participation in GVCs might have an impact on carbon emissions accounting and the corresponding reduction responsibility allocation. Remarkably, some scholars explored the impact of participation in GVCs on the individual region's CTT such as China (Fei et al., 2020; Yan et al., 2020; Wang et al., 2019b, 2020b) and the United States (Choi, 2015; Liu et al., 2020a), and they found that the participation in GVCs could reduce the CTT for developed countries and increase the CTT for developing countries. However, from the perspective of global environmental governance, it is difficult for the analysis of individual regions to thoroughly reveal the impact of participation in GVCs on carbon emissions accounting and the imputation of global emission reduction assignments. Consequently, it may not be conducive to a comprehensive understanding of the factors driving the changes in the CTT and the development of a more optimal global emission reduction policy. Thus, it is essential to explore the impact of participation in GVCs on the CTT from a global perspective.

Given that, to enable stakeholders to formulate more targeted global environmental governance measures, on the basis of constructing a model measuring the degree of participation in GVCs for 39 countries (all 27 EU countries and 12 major countries) based on the world input-output database (WIOD), this paper contributes to filling the above mentioned gaps by establishing an econometric panel data model to quantitatively investigate the impact of participation in GVCs on the CTT in 39 major economies from 1995 to 2011, and developing policy conclusions with regard to global climate change and carbon emissions mitigation. Overall, from the perspective of academic value, this paper will provide a new insight to enhance our more comprehensive understanding the determinants of the CTT, thereby implementing future climate and environmental governance measures at the global level from the perspective of practical usefulness. The remainder of this paper is organized as follows. Section 2 presents the details of methodology and data, while Section 3 gives our empirical results. An in-depth discussion with regard to regression results are presented in Section 4. Finally, Section 5 presents the conclusions and policy implications.