Upstreamness, Foreign Environmental Regulation and CO2 Emissions in Indian Manufacturing Firms

I analyse how global value chain (GVC) position and exposure to foreign environmental regulation shape firms’ CO2 emissions in a large emerging economy. Combining detailed energy-use records for Indian manufacturing firms with firm-specific GVC position indicators and exposure to foreign environmental policy stringency (EPS), I show three main results. A one-unit increase in upstreamness–moving further from final consumption roughly being equivalent to the average GVC position of textile firms to that of basic metals firms–raises direct CO2 emissions by 28% and CO2 per unit of value added by 35%. Second, the higher CO2 intensity of upstream firms becomes statistically insignificant for firms that operate in industries highly exposed to stringent environmental regulations: the interaction term between upstreamness and EPS is negative and statistically significant, fully offsetting the baseline effect. Third, exporting per se does not moderate the upstreamness-CO2 relationship, indicating that over-proportional technology upgrading in upstream positions is driven by exposure to destination-specific factors. Overall, the evidence suggests that foreign stakeholder pressure is transmitted through GVCs and can help decarbonise energy-intensive upstream producers.

Kiel Institut Expertinnen und Experten