How does participation in Global Value Chains affect embodied carbon emissions in international trade? New insights from cross-country panel data analysis

Global Value Chains (GVCs) significantly influence international trade and environmental outcomes. Despite the economic benefits of GVCs, their impact on the environment remains under-examined. This study  analyzes the effects of GVC participation (considering forward and backward positions) on total carbon emissions embodied in exports (TEEE) and imports (TEEI). Utilizing panel data from 65 economies spanning 1995 to 2018, we apply input-output matrices and the system generalized method of moments (GMM-SYS) approach. Our results indicate that GVC participation generally is associated with reductions in TEEI and increases in TEEE, with backward participation exerting a more substantial impact. Furthermore, we observed asymmetrical impacts of GVC participation between developed and developing countries. Developed nations tend to reap greater benefits from GVC in terms of diminished CO2 emissions associated with imports, as well as notable CO2 reductions in both exports and imports, particularly when forward participation is the focal point. Conversely, developing countries grapple with heightened environmental burdens stemming from their engagement in backward linkages.