Global value chains participation and trade-embodied net carbon exports in group of seven and emerging seven countries

Abstract

A vast literature has examined the empirical link between gross exports and total carbon emissions for different country groups. However, countries' increasing participation in global value chains (GVCs) challenges this traditional approach since the gross measures neglect trade-embodied carbon emissions and intermediates-driven value-added trade. Therefore, this study scrutinizes how backward participation (foreign contents in domestic exports) and forward participation (domestic contents in foreign exports) in GVCs affect per capita net exports of trade-embodied carbon dioxide emissions. The study adopts input-output accounting and value-added decomposition framework for Group of Seven (G7) and Emerging Seven (E7) countries over the 1995-2018 period. (i) Pre-estimation analyses reveal that the net carbon importer G7 group had a comparative advantage in high-tech exports and a lower export product concentration level, while the net carbon exporter E7 group had a comparative advantage in resource-intensive exports and a higher export product concentration level, albeit significant within-group heterogeneities. (ii) The augmented mean group estimates reveal that increasing backward participation raises net carbon exports for both G7 and E7. The forward participation-net carbon exports nexus is negative for G7 but positive for E7. (iii) While economic growth reduces net carbon exports in both groups, the effects of comparative advantages in resource-intensive and high-tech exports differ. Practitioners should be aware of the GVCs-driven carbon circle when assessing decarbonization performances and obligations of countries.

Keywords: Backward participation; Emerging seven; Forward participation; Global value chain; Group of seven; Net carbon export.