Global Value Chains Participation and Environmental Pollution in Developing Countries: Does Digitalization Matter?

This study analyses the effect of Global Value Chains participation (GVCPs) on environmental pollution. It also assesses whether the use of digitalization can mitigate the effect of GVCPs on environmental pollution. We employed the second-generation panel analysis on data from 112 developing countries over the period from 1990 to 2018. Using Driscoll and Kraay estimation technique, we find that the GVCPs increases environmental pollution while digitalization reduces CO2 emissions in developing countries. However, the results show that the U-inverted hypothesis between GVCPs and environmental pollution is not verified in the study areas. Furthermore, the study shows that, unlike renewable energy consumption, the FDI inflows, industrial value-added, and electricity consumption are positively correlated to environmental pollution in developing countries. We find that, reducing CO2 emissions from digitalization is more pronounced in other developing countries than in sub-Saharan Africa. Moreover, the findings show that digitalization can be used as an effective channel in reducing the effects of GVCPs on environmental pollution and helping developing countries to go green. These findings have important policy implications in exploring the GVCPs development dynamics in terms of upgrading opportunities in using digital technologies to reduce environmental pollution and promote green technologies' adoption for structural transformation of developing countries.