Global Value Chains, Foreign Direct Investment, and Industrial Pollution Intensity in China

As the search for resilience alters global value chains (GVCs), many developing countries hope to benefit from GVC participation. China's heavy reliance on GVC trade and its high pollution levels suggest that such benefits may come at the cost of the environment. Yet direct evidence on environmental effects from GVCs is limited. This paper proposes that GVCs and foreign investment can reduce pollution intensity through three channels: greener technologies, a wider range of local tasks, and learning. Drawing on the Copeland–Taylor trade and pollution model and the Feenstra–Hanson outsourcing model, we demonstrate this possibility. We then test this hypothesis using Chinese industrial SO2 and chemical oxygen demand emissions data. We develop two measures of the range of GVC tasks: a variant of the export extensive margin, and an adaptation of firm import and export upstreamness. Results suggest that GVC participation reduced industrial emissions intensity in China through all three channels.