Determinants of Aggregated Embodied Carbon Intensity in Global Bilateral Exports by Firm Heterogeneity

Abstract

Reduction of carbon emissions embodied in trade is essential in the context of economic globalization. However, studies have not yet measured the aggregated embodied carbon intensity (AEI) in global bilateral exports from the perspective of heterogeneous ownership firms and its key determinants such as environmental and trade policies. Using the hypothesis extraction method and gravity model, the study examines these issues with the data of domestic and multinational firms from 44 regions throughout the world between 2005 and 2016. The findings indicate the following: (1) The AEI in global bilateral exports of multinational firms generally outperforms domestic firms around the world, with the exception of some European Union member states. (2) Carbon pricing policy can better improve the bilateral AEI of domestic and multinational firms than environmental tax policy. Moreover, compared with multinational firms, carbon pricing policy can better reduce the carbon emissions of domestic firms but bring them much greater economic loss. (3) A common language favors domestic and multinational firms' environmental surplus in global bilateral exports, while a colonial relationship leads to their environmental deficit. (4) Compared with bilateral tariffs policy, improving economic growth is more helpful to reduce the bilateral AEI of domestic and multinational firms.