The impact of economic complexity on embodied carbon emission in trade: new empirical evidence from cross-country panel data

Muhammad Qayyum,Yuyuan Yu,Shijie Li

doi:10.1007/s11356-021-14414-3

Abstract

Establishing a fair platform for allocating carbon emission responsibility worldwide determines the sustainability and efficiency of the world’s climate policy and framework. In the context of global environmental load displacement and CO2 transfer, this paper endeavors to examine the relationship between economic complexity and embodied carbon emissions based on cross-country panel data. Our study utilizes the generalized method of moments (GMM) approach to estimate our dynamic models covering 34 OECD countries and 24 non-OECD countries from 1995 to 2015. The empirical results show a heterogeneous impact of economic complexity on embodied carbon emissions in exports (EEE) and imports (EEI). Besides, the scale effect, composition effect, and technology effect are also significant drivers of embodied carbon emissions. The improvement of economic complexity can decrease the marginal effects of export scale and export structure on foreign EEE (but not domestic EEE) significantly, while the marginal positive impacts of technology on EEE can be further enhanced by economic complexity growth. Moreover, there is no strong evidence to prove the significant indirect impacts of economic complexity on foreign carbon emission embodied in imports, while economic complexity has significantly positive indirect impacts on domestic carbon emission embodied in imports only through import scale. In the subsample regressions, we found asymmetric impacts of economic complexity between high-income countries and low- and middle-income countries.

Highlights

Economic globalization has greatly facilitated the development of the world economy by allocating productive resources worldwide efficiently, such as labor, capital, and technology
The extension of the global value chain (GVC) has resulted in the so-called environmental load displacement or CO2 leakage, which is defined as the transboundary flow of pollutants and “displaced” environmental degradation from the consumption-based view (Muradian et al 2002)
For embodied in exports (EEE), the coefficients economic complexity index (ECI) are all significantly positive at the level of 5% in columns (1) and (2), indicating that a one-unit increase in economic complexity can result in a significant rise in FEEE and DEEE by 18.8% and 16.5%, respectively

Summary

Introduction

Economic globalization has greatly facilitated the development of the world economy by allocating productive resources worldwide efficiently, such as labor, capital, and technology. With the deepening and broadening of GVC, the volume of carbon emissions embodied in exports (EEE) or imports (EEI) is significant in OECD countries and four developing countries (Brazil, China, India, and Russia). Among these countries, EEE or EEI is usually 10–20% higher than domestic production (Ahmad and Wyckoff 2003). A multidimensional evaluation system should be established to capture the complexity of the environmental system (Fang et al 2020b) In this context, researchers should provide more insights on how to control EET and allocate the responsibility for carbon emissions worldwide

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Conclusion