Emissions and Fluctuations in Global Value Chains: Cross-country and Industry-level Evidence

Abstract

Purpose - This paper explores how global value chain (GVC) participation affects the comovement between real industrial value-added and emissions over business cycles. Design/Methodology - We follow de Soyres and Gaillard (2022) and Wang et al. (2022), first measuring the forward and backward links in GVC activities at the country and industry levels. Specifically, we examine both Simple and Complex GVC activities by considering the inclusion of indirect transactions through third countries. Second, we conduct a panel analysis on the covariation between value-added and emissions during economic f luctuations and the relationship with GVC participation rates. Findings - We find that the increase in participation rates in forward-link GVC activities enhances the covariation between economic fluctuations and emissions, whereas the effects of the change in participation rates in backward-link GVC activities are statistically insignificant. In contrast to EU members, this pattern is reversed in countries that depend largely on energy trade from a global perspective, such as the United States, Russia, Korea, and Japan. Originality/value - We contribute by quantitatively presenting the covariation of economic fluctuations and emissions within GVC activities, going beyond existing literature that predominantly explores growth, the environment, and trade. Our contrasting results among country groups indicate that as countries worldwide pursue carbon neutrality, the divergence in positions among countries based on their dependence on energy trade may intensify the likelihood of trade disputes.