Carbon endowment and trade-embodied carbon emissions in global value chains: Evidence from China

Recent literature highlights global value chains and the trade-embodied carbon emissions; however, it fails to explain how changes in positions within global value chains affect the emissions embodied in a certain economy’s trade. Carbon emissions are the by-product of production activities that use fossil-fuel-based energy; these emissions can be treated as an ideal measure of the carbon endowment of a certain economy, and they are directly related to environmental regulations. This study constructs an extended environmental Heckscher-Ohlin-Vanek model by treating carbon emissions as a measure of carbon endowments to explain the flow patterns of the trade-embodied emissions under a global-value-chain framework. This study also investigates the impact of a certain economy’s emissions embodied in trade due to a change in position within a global value chain. The results show that a Heckscher-Ohlin-Vanek model can be used to explain the carbon-flow patterns of China and its trading partners. Economies gathered at the two ends of these global value chains are found to have lower or even negative net carbon outflows, while economies that are trapped at the middle-to-high levels of their global value chains, especially those with relatively abundant carbon endowments, tend to have higher net carbon outflows. To reduce their net emissions embodied in trade, these economies should institute stricter environmental regulations, optimize their energy structures and improve their energy efficiencies. Another effective way to eliminate the carbon-lock-in effect would be move up or down along global value chains to stay close to either end of the production chain.