Global value chains and firms’ environmental performance

Abstract

This paper analyzes the link between joining global value chains (GVCs) and firms’ environmental performance. Based on new survey data for firms in countries in Central Asia, Eastern Europe, and MENA, we use propensity score matching (PSM) to compare similar companies that differ in terms of GVC participation. Our results show that firms that enter GVCs perform better across several environmental indicators. In particular, these firms are more likely to adopt environmentally friendly production technologies, comply with more demanding standards and regulations and, in the case of manufacturing firms, monitor CO2 emissions along their supply chains. Moreover, by combining PSM with difference-in-differences, we find that becoming active in GVCs is also linked to more efficient energy use. Our results are stronger for firms in non-EU countries, and highlight the importance of environmental regulation in ensuring that global supply chains go hand in hand with greener production.