International trade plays crucial roles in the evolution of carbon emissions given the prevalence of complex global supply chains. Production reallocation across countries promotes the cross-border trade of emission-embodied products and is closely related to emission transfer or carbon trade balance, which is defined as the difference between territorial and consumption emissions. One important issue addressed in this study is how carbon trade balances relate to carbon emissions under a globalized world with fragmented production. By applying a panel-pooled mean group-autoregressive distributive lag (PMG-ARDL) model, we evaluate the long-run relevance between carbon emissions and carbon trade balances while considering the short-run dynamics over 58 countries during the period of 1990-2014. The main results reveal a positive relationship between carbon trade balances and carbon emissions for high-income countries but no clear evidence for low-income countries. Our analysis argues that a high-income country may achieve emission reduction not only by displacing production units to trading partners but also by transferring high emission-intensive production units to trading partners and by keeping low emission-intensive domestic production units. Our results provide some important implications about emissions embodied in trade and emission transfers via international trade. First, high-income countries, particularly emission importers, should have the greater responsibility for global emission issues and should continue to develop and improve energy-saving and less emission-intensive technology. Second and more importantly, high-income countries should promote spillovers of advanced green technology to trading partners when they outsource emission-intensive production units to low-income countries.
Keywords: Carbon emissions; Carbon trade balances; Cross-border; PMG-ARDL model.