Environmental Dimension of Value Chain Linkages: Empirical Assessment of India’s Manufacturing Sector

Abstract

The emergence of global value chains (GVCs) has presented emerging nations like India with possibilities to combine into the worldwide economic system, which has had a major effect on the economy and the environment. With India’s manufacturing sector accounting for 15% of India’s gross value added, it is one of the main engines of the country’s economic expansion. Additionally, it is vulnerable to changes in technology and ranks second in terms of carbon dioxide (CO2) emissions, after the production of electricity. This study attempts to draw interrelations between CO2 emissions embodied in trade and GVC participation for this sector. Using the autoregressive distributive lag approach for the time period 1995–2018, this study exhibits significant cointegration between value chain participation and embodied emissions in gross exports for the short run and long run. However, while the impact of economic growth is positive for foreign emissions embodied through imported intermediates and negative for the emissions embodied in India’s exports of domestic goods, there exist important policy implications in this regard. Also, it is vital for an emerging nation like India to accord primacy to other indicators like the Environmental Stringency Index and spending on research and development so as to reduce its carbon emissions and improve its ecology. Novelty in this study arises from the fact that it utilises inter-country input–output statistics, OECD on fuel combustion to the resident industry and household, where carbon emissions have been decomposed into the foreign and domestic emissions embodied in gross exports for India’s manufacturing sector. JEL Classification: F110, F664, B223