Efficiency of domestic institutional arrangements for environmental sustainability along the way to participate in global value chains: evidence from Asia

The well-functioning domestic institutions are very important for the global value chains to have its positive impact on environment. This article provides an empirical assessment of the impact of domestic institutional arrangements along the way to participate in global value chains on environmental performance index for sustainability goals for 41 Asian countries over 2001-2018 period. Most recent empirical studies assumes that causality runs to environmental measures through trade and governance but inverse relationship is also feasible and none of the previous studies have discussed about it. Using instrumental variable strategy to closing these gaps, we analyse the mechanism of direct and indirect impact of participation in global value chains on environmental performance index. Our results show that environmental performance index is negatively affected by participation in global value chains and this relationship overturns when participation in global value chains is accompanied by governance facilitation. Further, the findings suggest that governance-augmented participation in global value chains is a tool of environmental sustainability.

Automated summary

Well-functioning domestic institutions play a crucial role in determining the impact of global value chains on the environment. This article empirically assesses the relationship between domestic institutional arrangements and environmental performance index for Asian countries participating in global value chains from 2001 to 2018. The findings suggest that participation in global value chains negatively affects environmental performance index, but this relationship can be reversed when accompanied by governance facilitation.