Global Value Chain Production Research Articles

Impact of global value chain embedding on decoupling between China's CO2 emissions and economic growth: Based on Tapio decoupling and structural decomposition

With the increasing fragmentation of global production, China's participation in cross-border production sharing activities has had a considerable impact on the nation's economy and carbon dioxide (CO2) emissions. This study applied the Tapio model to quantitatively evaluate the decoupling between CO2 emissions and economic growth in China, dividing the decoupling index based on global value chains (GVCs) and domestic production within the IO framework, and introducing structural decomposition analysis (SDA) to analyze the GVC-related factors to the decoupling. The relevant research results are fourfold. (1) From 2000 to 2018, China achieved weak decoupling between emissions and economic growth. Domestic and GVC effects each had a negative impact on the decoupling; however, after 2008, the GVC effect had a promotional effect and the negative domestic effect declined. (2) Emission intensity was the primary factor promoting decoupling through domestic and GVC effects, while the scale of final demand was the main hindrance. And the negative effects of GVC-related factors declined following the economic crisis. (3) The regional and sectoral structures of GVC production (58.44 % and 56.08 %) had promotional roles in the changes in GVC effects, while GVC production linkages (−20.19 %) had hindering effects. Various factors contributed to the hindering effect from the 2008 to 2011 index, whereas from the 2011 to 2018 index, all factors contributed to the promotional effect. (4) From 2000 to 2018, the average annual global value chain effect promoted the low-carbon development of China's labor-intensive and knowledge-based manufacturing. In order for GVCs to play a positive role in decoupling, China should promote trade facilitation through international platforms, support the advancement of production technology, reasonably guide China's industries to participate in the regional and industrial links of GVCs, and develop strategic emerging industries.

Trade-off between carbon emissions and employment embodied in global value chains: A study based on enterprise heterogeneity in China

Comprehensively measuring embodied carbon emissions and employment generation from global value chain (GVC) production activities is essential for GVC upgrades and sustainable development. Previous studies have ignored embodied carbon emissions and employment generation from GVC production activities involving cross-border direct investment, which may underestimate the impact of GVC participation. Using an intercountry input-output model distinguishing domestic and foreign-invested enterprises, this study measured embodied carbon emissions and employment generation in China's GVC production activities from 2005 to 2018 and explored their trade-offs based on the aggregate-embodied carbon employment intensity (ACEI). The major findings were as follows. (1) Trade-related GVC contributes more to embodied carbon emissions than to that of embodied employment. However, investment-related GVC had the opposite effect. Mixed trade and investment-related GVC contribute approximately equally to carbon emissions and employment. (2) China experienced increasing environmental losses relative to employment generation from GVC participation increased between 2005 and 2018. The environmental costs of creating employment units through investment-related GVC activities were lower than those for the other two GVC routes. (3) High R&D-intensive manufacturing industries suffered a notable decline in ACEI. This finding suggests that a double dividend for the environment and employment is more likely to be achieved in high-tech manufacturing industries. (4) The ACEI of foreign-invested enterprises in China was lower than that of domestic enterprises, particularly in the production-sharing activities between foreign-invested enterprises, which exhibited a better trade-off between socioeconomic benefits and environmental damages. These findings provide useful insights into the impact assessment of GVCs, which aid in achieving sustainable development in China and other emerging economies.

Deep trade agreements, production position distance and bilateral global value chain participation

AbstractOwing to globalisation‐induced fragmentation of production across regions and reorganisation of global value chains (GVCs), more attention is being paid to the impact of deep preferential trade agreements (PTAs) on GVC participation. We examine how the promotional effect of deep trade agreements on GVC participation changes with GVC production position distance between member countries. We argue that production position distance has an inverted U‐shaped effect on the relationship between deep trade agreements and bilateral GVC participation. Specifically, starting with a short production position distance, an increase in production position distance can strengthen the promotional effect of deep trade agreements on bilateral GVC participation. However, when the production position distance reaches a certain threshold, an increase in production position distance weakens the promotional effect of deep trade agreements on bilateral GVC participation. Analysis of panel data, which covers 43 countries over the 2000–2014 period, supports our predictions. Further analysis shows that the inverted U‐shaped effect of production position distance on the relationship between deep trade agreements and bilateral GVC participation is more likely to take place in the manufacturing sector rather than in the services sector.

Decomposing the carbon footprints of multinational enterprises along global value chains

Significant environmental impacts of multinational enterprises (MNEs) are beyond firms and countries because of their cross-border production-sharing activities. In this paper, we trace MNEs’ carbon footprints (CFs) to the upstream along global value chains (GVCs) and analyze the driving factors that lead to changes in MNEs’ CFs through hierarchical structural decomposition analysis. Our findings show that the distribution of MNEs’ CFs is highly consistent with the distribution of their GVC production networks, where these CFs are mainly concentrated in advanced economies, and emerging markets and developing economies only account for a small but gradually increasing share. Further, MNEs’ CFs are mainly attributed to medium high/high-tech manufacturing, especially in emerging markets and developing economies, where over one-half of these firms’ CFs are generated in computer, electronics and optical products and motor vehicle production. Finally, we analyze the different impacts of changes in the emissions of domestic-owned enterprises, foreign-invested enterprises in host countries and emissions generated abroad on MNEs’ CFs as well as the main driving factors leading to these changes in the US, Germany, China, India, Mexico and Singapore. Our findings provide support for MNEs’ whole global-value-chain emission control to realize global carbon neutrality and shed light on possible pathways for mitigating the domestic carbon emissions of economies that are deeply integrated into GVCs.

Can the extension of the global value chain production length promote carbon emissions reduction in China's equipment manufacturing industry?

In the context of localization of Global Value Chain (GVC) and stricter carbon emission requirements, the impact of participating in GVC on carbon emission reduction has become one of the most crucial criteria for China's manufacturing industry to consider whether to deepen its participation in GVC. In order to clearly and directly reflect the change in the production distance between the original input and the final product, we use the GVC production length to express the degree of participation in GVC. And in order to make the research more targeted and typical, we select the equipment manufacturing industry as the research object. Using the data from the World Input-Output Database (WIOD), we empirically analyze the GVC production length under different cross-border production activities on the basis of the theoretical mechanism. The results show that the extension of the GVC production length can significantly promote the carbon emissions reduction. In the decomposition part, the extension of simple GVC production length can effectively promote carbon emissions reduction. Therefore, it is suggested that China's equipment manufacturing industry should continue to deeply participate in the high-end production links of GVC and improve its status in the complex GVC production activities.

China’s functional upgrading in global value chains and its drivers: a multi-country chaining structural decomposition analysis

ABSTRACT The functional activities, such as management, marketing, R&D and fabrication, carried out by a country or industry is of great importance for its governance and upgrading on the global value chains (GVCs). This paper provides a long-term macro-economic analysis on China’s functional upgrading in GVCs and its drivers between 1999 and 2011. We combine the world input-output database with the newly compiled labour occupations database to measure China’s functional income growth in internationally fragmented production networks, and then incorporate the concept into the chaining structural decomposition analysis (SDA) to explore its drivers. We find that China has achieved functional upgrading to some degree, reflected in the growth of China’s domestic value added in headquarter activities, such as R&D, at the aggregate and industrial levels. However, fabrication activity still stands out, indicating that China still has a long way to go on upgrading in GVCs. Finally, through the chaining SDA, we find that among the GVC production, technology and consumption effects, the consumption level (consumer demand) is the main factor driving the growth of China’s functional upgrading.

Labour demand in global value chains: Is there a bias against unskilled work?

AbstractRodrik (2018) hypothesises that technology used in global value chains (GVCs) is biased against the use of unskilled workers. To test this hypothesis, we introduce a GVC production function in which final output is produced by means of factor inputs from all countries that participate in the GVC. In contrast, previous studies only consider one stage of production using inputs from a single country. We derive substitution elasticities and labour demand bias in a system of translog GVC cost equations. We find that technical change in GVCs was strongly biased against the use of low‐educated workers, neutral for middle‐educated workers and in favour of high‐educated workers. We show that the biases moderate the potential of GVCs to increase demand for low‐educated workers in low‐income countries.

The changing role of global value chains in CO2 emission intensity in 2000–2014

The growing and transiting global value chains (GVCs) have largely reshaped the economic landscape as well as CO2 emissions of countries. Decoupling GVCs from emissions is essential to achieving the global climate goal. A fundamental question is to understand the changing role of GVCs in global CO2 emissions. To this end, we propose a multi-region structural decomposition analysis model to quantify the impacts of GVCs on global and national emission intensities. The structural changes in GVCs are further characterized by three aspects, i.e. the GVC production linkages, regional and sectoral structures of GVC sourcing. Applying the proposed methodology to the global multi-region input-output tables for 2000–2014 shows that GVCs were much more emission intensive than domestic production during this period. Nevertheless, GVCs were the sole force improving global emission intensity, stemming mainly from contributions by emerging economies as well as service and manufacturing sectors. The sectoral structure of GVC sourcing was a main contributor to the improvement, while the regional structure of GVC sourcing and GVC production linkages hindered the procedure. Finally, GVC impacts on emission intensities varied before and after the 2008 economic crisis.

The Global Value Chain Position and Evolution Path of China’s Domestic-owned and Foreign-owned Enterprises: Measurement Based on Industry Data

Multinational enterprises link domestic value chains and global value chains（GVCs）, so understanding their activities is fundamental to understanding GVCs. However, few studies focus on Chinese foreign-owned enterprises’ position in GVCs. In this paper, China’s industry data are divided into domestic-owned and foreign-owned enterprises, and production, trade and investment are integrated into a unified framework of GVCs. Based on the global input-output model considering heterogeneity between domestic-owned and foreign-owned enterprises, this paper constructs forward and backward production length index, analyzes Chinese domestic-owned and foreign-owned enterprises’ position and evolution path in GVCs from the perspectives of production and consumption. The results show that: Domestic-owned enterprises are in a more upstream position in GVCs than foreign-owned enterprises. Domestic-owned enterprises have a more complete production chain in China, which makes a greater contribution to domestic production and consumption. Foreign-owned enterprises have a significant proportion of the GVC production chain, with obvious export-oriented characteristics. The decomposition of forward and backward production chains show that the GVC production chain is the longest, and the traditional trade production chain is longer than the pure domestic production chain for both domestic-owned and foreign-owned enterprises. Both of them have the characteristics of “dual production structure”, i.e. the GVC production chain is more complex, and export production is more complicated than pure domestic production. From the perspective of industries, most industrial production chains of domestic-owned enterprises are longer than that of foreign-owned enterprises, and the production chain of manufacturing industry is longer than that of service industry. The pure and traditional trade production length of foreign-owned enterprises are almost equal to 1, while the pure and traditional trade production length of domestic-owned enterprises are larger than 2, which indicates that foreign-owned enterprises play a small role in domestic production, and the upgrading of domestic industrial structure mainly depends on the production and consumption of domestic-owned enterprises. From the perspective of evolution path, most domestic-owned enterprises evolve along path 1 in GVCs, with longer production length and closer industrial links, while most foreign-owned enterprises evolve along path 2 and path 4 in GVCs, indicating that they are outflowing from China. Therefore, domestic-owned enterprises should further strengthen the separation of functions and spaces, and be more actively embedded in GVCs; China should care about the manufacturing industry which could drive and promote its upstream and downstream industries, and not abandon the processing manufacturing industry and turn to the high-tech or modern service industry blindly; it should also maintain the consistency of trade and industrial policies, and guide foreign investment in China in a rational way.

How global value chain participation affects China's energy intensity

China is currently the world's largest energy consumer and, at the same time, a huge trading power. With the increasing complexity of production processes along global value chains (GVCs), it is of great significance to study the impact of GVC participation on energy intensity. By using production length to measure GVC participation, this study first calculates China's manufacturing industry's total average production length of GVC activities and its three segments: length of pure domestic production, length of traditional trade production, and production length of GVC activities. Next, this study explains the influence mechanisms of GVC participation on energy intensity, proposes three research hypotheses, and conducts econometric analyses to examine the influence of production length and its three segments on energy intensity for a sample of China's manufacturing sector from 2000 to 2014. The results indicate that the total average production length of GVC activities significantly affects energy intensity and presents an inverted U-shaped, non-linear relationship wherein China has passed the critical point. The interactions between the three segments of production length and energy intensity also present an inverted U-shaped, non-linear relationship, where the impacts of the pure domestic segment and the “traditional” trade related segment on energy intensity have passed the critical point, while that of the segment related to GVC production has not yet crossed the critical point. It is suggested that further promoting China's manufacturing industry towards the mid-to-high end of the GVCs and breaking through its captive and “squeezed” position in the GVCs could significantly contribute toward curtailing energy intensity.

Global impacts of China–US trade tensions

This paper studies the economic impacts of China–US trade tensions. A global value chains-augmented global vector autoregressive trade model that gauges the spatial and temporal dynamics of international transmission of economy-specific trade policy shock across economies is employed. Trade tensions are found to have both real and financial effects on individual economies. Results lend support to the thesis that international trade is a positive-sum game in the world trading system characterized by global value chains. The US restrictive trade policy is counter-productive to the US economy by worsening its trade imbalances. Redirection of investment from China may be limited given the contemporary world economy characterized by global value chain production networks. Economies from different regional economic groups and with different trade balance positions are heterogeneously affected. As a whole, trade protectionism is detrimental to the economic well-being of the world economy by shrinking international trade, reducing output, curbing investment and plummeting stock prices.

Technology, offshoring and the rise of non-routine jobs

This paper documents the growing share of non-routine jobs in the labor force of thirty-seven advanced and emerging countries over the period 1999–2007. To examine the role of offshoring and technological change in driving this labor market development, we develop a task-based model of production in global value chains and propose a decomposition of changes in occupational labor demand. In the setup of the model, technological change affects the total number of workers with a certain occupation throughout the production chain, while task relocation consists of a shift in occupational labor demand from one location to another. For the empirical implementation we combine harmonized cross-country occupations data with world input-output tables. The results of our decomposition suggest that technological change increased the number of non-routine relative to routine occupations in all countries. The effect of task relocation is less strong, and works in the same direction for advanced countries such as Germany and the United States but in the opposite direction for emerging countries such as China and Poland.

PRODUCTION SHARING, DEMAND SPILLOVERS AND CO2 EMISSIONS: THE CASE OF CHINESE REGIONS IN GLOBAL VALUE CHAINS

Recent trade literature highlights production sharing among economies [Johnson, R and G Noguera (2012). Accounting for intermediates: Production sharing and trade in value added. Journal of International Economics, 86(2), 224–236), and some studies report that 20–25% of CO2 emissions can be attributed to international trade [Peters, G, J Minx, C Weber and O Edenhofer (2011). Growth in emission transfers via international trade from 1990 to 2008. Proceedings the National Academy of Sciences USA, 108(21), 8903–8908.]. However, the mechanism explaining how and to what extent production sharing affects CO2 emissions remains unclear. This study, as an extension of [Meng, B, J Xue, K Feng, D Guan and X Fu (2013a). China’s interregional spillover of carbon emissions and domestic supply chains. Energy Policy, 61, 1305–1321.], adopts the perspective of demand spillovers to provide new insights regarding the position of Chinese domestic-regions’ production in Global Value Chains (GVCs) and their associated CO2 emissions. To this end, we employed a new type of World Input-Output Database (WIOD) in which China’s domestic interregional input–output table for 2007 is endogenously embedded. The pattern of China’s regional demand spillovers across both domestic regions and countries is revealed by employing this new database. These results were then connected to endowments theory, which helps to make sense of the empirical results. It is found that China’s regions are located relatively upstream in GVCs, and had CO2 emissions in net exports, which were entirely predicted by the environmental extended Heckscher–Ohlin–Vanek (HOV) model. Our study points to micro policy instruments to combat climate change: for example, tax reform for energy inputs that helps to change the production pattern, which then has an impact on trade patterns and so forth.

Determinants of China's bilateral trade balance in global value chains

ABSTRACTThis paper identifies the determinants of China's bilateral trade balance using a new measure based on international input–output data, the so-called ‘trade in value-added’ (TiVA), which can prevent double counting in the estimation of bilateral trade balance. Our results show that using a measure based on gross exports, rather than TiVA, causes relatively large overestimation of the impact of the RMB exchange rate on China's bilateral trade balance. This overestimation is mainly because that the increasing production of exports may require increasing intermediate imports as a consequence of international fragmentation of production in global value chains. In addition, our results also show that the impact of FDI inflows on China's bilateral trade balances depends on the position and role of China and its trading partners in GVCs.

'Made in the World': Does the Current Global-Value-Change Economy Require Any Changes in the WTO Regulatory Framework?

The international fragmentation of production in global value chains (GVCs) is arguably one of the most important factors shaping international trade today. It challenges the way we look at the global trade. Trade in intermediates, trade in task and trade in services comprise majority of the international trade. More and more products are now 'Made in the World' rather than 'Made in China' or 'Made in Germany'. Exports and imports have been closely interlinked so as to make the capacity of a country to exports heavily dependent on efficient import. The role of multinationals has been crucial in spreading and managing the value chain globally. The rise of the 21st century trade and trade-service-investment-IP nexus has made relevant policy making more complicated and multidimensional. As the World Trade Organization (WTO) was busy with Doha Development Agenda (DDA) and 20th century trade and border disciplines, these behind the border 'deep integration‘ issues have been largely developed and regulated by the Preferential Trade Agreements (PTAs). Though GVCs strengthens the case for multilateralism, they have been increasingly regional leading to the emergence of '21st century regionalism'. Most of the developing and least developed countries (LDCs) remain excluded from the GVCs -- a fact that seriously questions its global face. Rise of the PTAs and the recent under-negotiation mega-regionals have eroded WTO centricity of the world trade regime by threatening to establish an alternative global mechanism for GVCs. Now to stay relevant to these new dimensions, WTO must live up to the challenges before they go out of its ambit. The 'Bali package' has created a momentum by confirming the political support of the world community for WTO rulemaking. WTO must build on it to reach a multilateral consensus dealing with the 21st century trade governance before it is too late.