The Role of Global Value Chains in Outsourcing Greenhouse Gas Emissions

This paper tracks the greenhouse gas (GHG) emissions embedded in global value chains (GVCs) in 186 countries for the period 1990-2015. It then looks at the determinants of the emissions considering both country- and sector-level variables in a gravity-like framework. Our graphical visualization displays that, as expected, developed countries appear to be both major GHG emission producers and outsourcers in the highly fragmented world. Indeed, the trade activities of China, the US, Germany, Japan, and Russia contribute 40 percent of total global emissions. Moreover, while higher capital stock is attributable to higher GHG emissions embedded in GVCs, our empirical results reveal that sectors’ renewable energy consumption can be seen as an emission-decreasing factor. While higher income and financial development levels seem to decrease air quality, regional or global integration in trade agreements seems to be consistent with the current increasing efforts and concerns regarding environmental issues. Given the current trajectory and the findings of this paper, negotiating environmental policies across nations, an adaptation of greener production technologies in the production process, and cost-sharing plans between governments and producers should be carefully considered to decrease environmental degradation and sustain natural resources.