The impact of trade on energy efficiency in the global value chain: A simultaneous equation approach

Abstract

Fostering energy efficiency is one of the most effective ways to sustain economic growth while addressing climate change and limiting emissions. On the other hand, the pattern of international trade has changed many folds. The present study quantified the value-added trade (VAT) and developed a simultaneous equation model to empirically analyze the impact of value-added trade on energy efficiency in the global value chains (GVC). The Super-SBM model is used to estimate energy-efficiency. Empirical results indicate that India, Brazil, USA, Poland, France, Turkey, Israel, Italy are super-energy efficient, as their efficiency score is greater than 1. Secondly, value-added trade significantly improves energy efficiency by 0.434 after controlled the time and country effects. In addition, trade is divided into value-added exports and value-added imports to describe the internal trade mechanism, which depicts that the magnitude of the energy efficiency effect of value-added exports (0.011) is greater than that of imports (0.009). The findings also suggest that investment in R&D, foreign investment, and human education significantly improves energy efficiency. Foreign direct investment (FDI) positively increases the energy efficiency after controlled the unobserved fixed effects of country and year. It reflects the importance of the technology diffusion on increasing energy efficiency through FDI. Additionally, political regimes have also major impacts on both energy efficiency and value-added trade.