Abstract
This paper analyzed the annual trends in energy consumption of 14 industries in Korea from 2000 to 2014 using an extended log mean Divisia index (LMDI) method that embedded global value chain (GVC) divisions in the standard LMDI decomposition. Using a world input–output table, we calculated foreign value-added share in the GVC activities for each industry. Based on a Cobb–Douglas production technology, we embedded GVC divisions in the ordinary LMDI factor decomposition. The key findings indicate that the production effect mainly drives energy consumption, while energy consumption has decreased by both the foreign-structure effects and the foreign-intensity effects. Together with a decline in the domestic energy intensity effects, both of the GVC effects have improved energy efficiency. Energy-intensive industries have consumed more energy than other industries, while they have more incentive to save energy costs because these costs are a large proportion of total import costs. The opposite pattern occurred in other industry groups. Industries that do not naturally depend on energy tend to consume more energy and became more energy-intensive.
Highlights
Globalization has greatly influenced patterns in both international trade and energy use
Departing from the previous literature, we extended the log mean Divisia index (LMDI) decomposition through the global value chain (GVC) dimensions constructed by Timmer et al [5] and Los et al [2]
Our findings show that the production effect is the main driving force that increases energy consumption, while among the GVC components, energy consumption has decreased in both foreign-structure and foreign-intensity effects
Summary
Globalization has greatly influenced patterns in both international trade and energy use. It concatenates trade and environmental policies in the global value chain (GVC) perspective. Over the past two decades, trade liberalization has accelerated fragmentation of production across borders. GVCs have become a prominent feature of the world economy. The international division of labor has been stimulated by multinational corporations in overseas markets. Apple utilizes division of labor to sell completed products to consumers around the world after procuring parts from Japan and Korea and assembling and processing them in China [1]. Economic policies that cope with uncertainty in changes in GVCs are an important issue for the world economy
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