The Asymmetric Green Transition: Global Value Chains, Fixed Adoption Costs, and Firm-Level Carbon Productivity

This paper studies whether global value chain (GVC) participation improves firm-level carbon productivity and why the effects differ by firm size. We develop a heterogeneous-firm model in which firms face fixed costs of adopting abatement capacity. Backward GVC participation can raise domestic carbon productivity by reducing domestic processing per unit of value added, while the effect of forward participation is theoretically ambiguous. We test these predictions using Korean manufacturing firms subject to the emission trading system during 2011--2021, combining firm-level emissions and financial data with industry-level GVC measures. To ensure empirical rigor, our design examines baseline dynamics via system GMM estimation, establishes primary causal identification through a shift-share instrument approach, and implements alternative specifications for exhaustive sensitivity checks. The results show that backward GVC participation is associated with higher carbon productivity mainly among large firms. Small and medium-sized enterprises show little response to GVC exposure or emission trading system (ETS) dummies, consistent with fixed costs limiting green adjustment. Further exploration of possible reasons behind this pattern suggests that large firms' gains are associated with both cost-driven sourcing from developing partners and technology-related links to advanced-economy partners, especially when financial constraints are weaker.