An Analysis of the Impact of Global Value Chain (GVC) Participation and Environmental Policy Stringency on Carbon Emissions in International Trade

Purpose – This study analyzes how forward participation, production length, and environmental policy stringency (EPS) index within the global value chain (GVC) impacts CO2 emissions embodied in international trade. This study aims to understand the interactions between these factors and their implications for sustainable production across various economic contexts. Design/Methodology – Using panel data from 35 countries over 2007-2018, this study applies the feasible generalized least squares (FGLS) method to address heteroskedasticity, serial correlation, and cross-sectional dependence. It examines the effects of forward participation, production length, and the EPS Index on CO2 emissions embodied in international trade, providing insights into the combined influence of these factors on carbon levels within GVC structures. Findings – The results indicate that forward participation in GVC generally reduces CO2 emissions embodied in trade, while longer production lengths increase emissions due to cumulative carbonintensive processes. Higher EPS values are associated with CO2 reduction, particularly in countries with significant forward participation. The study also reveals how CO₂ emission impacts vary between nations, influenced by economic structures and technological levels, highlighting the need for tailored environmental policies. Originality/value – This study provides new insights by exploring the interplay between GVC dynamics and environmental policy stringency. Unlike prior studies that focused on direct emissions or trade volumes, this study emphasizes the role of GVC structures in shaping CO2 outcomes, offering policymakers guidance for sustainable context-specific regulations.