The Role of Global Value Chains in Carbon Intensity Convergence: A Spatial Econometrics Approach

TL;DR

This study uses spatial econometrics to analyze how global value chains influence carbon intensity convergence among countries, highlighting the role of GVCs in environmental and policy outcomes.

Contribution

It provides empirical evidence that GVCs facilitate carbon intensity convergence and spillover effects, emphasizing their importance in environmental policy design.

Findings

Spatial correlation in CI growth among GVC trade partners

GVCs promote conditional CI convergence

Expanding GVCs helps bridge CI gaps between countries

Abstract

The expansion of trade agreements has provided a potential basis for trade integration and economic convergence of different countries. Moreover, developing and expanding global value chains (GVCs) have provided more opportunities for knowledge and technology spillovers and the potential convergence of production techniques. This can result in conceivable environmental outcomes in developed and developing countries. This study investigates whether GVCs can become a basis for the carbon intensity (CI) convergence of different countries. To answer this question, data from 101 countries from 1997 to 2014 are analyzed using spatial panel data econometrics. The results indicate a spatial correlation between GVCs trade partners in terms of CI growth, and they confirm the GVCs-based conditional CI convergence of the countries. Moreover, estimates indicate that expanding GVCs even stimulates bridging the CI gap between countries, i.e., directly and indirectly through spillover effects. According to the results, GVCs have the potential capacity to improve the effectiveness of carbon efficiency policies. Therefore, different dimensions of GVCs and their benefits should be taken into account when devising environmental policies.