Effects of Global Value Chain Participation on Economic Growth and Carbon Emissions: A Panel VAR Analysis

This study explores the effects of forward and backward participation in Global Value Chains (GVCs) on economic growth and carbon emissions, using inter-country input-output (ICIO) data from 1995 to 2018. While prior research has either focused on bivariate relationships or failed to distinguish the distinct impacts of forward and backward GVC participation, this study makes a novel contribution by simultaneously analyzing these variables within a panel vector error correction model (VECM). This approach enables the isolation of directional GVC effects, incorporates long-run equilibrium relationships, and minimizes the potential for intervariable endogeneity. The study yields three key findings. First, we observe a positive long-run relationship between GVC participation and economic growth, irrespective of the direction of participation. Second, evidence of cointegration and dynamic causal relationships is found among GVC participation, economic growth, and carbon emissions. Third, we demonstrate that forward GVC participation has a negative causal effect on carbon emissions, while backward GVC participation is associated with positive causality. These results support the potential for sustainable economic development through GVC participation. Moreover, when countries are classified as environment-friendly or less environment-friendly, our findings indicate that sustainable growth is more achievable in environment-friendly countries.