Trade openness, global value chain integration and firms’ adoption of environment-friendly strategies

This paper investigates whether firms that are more open to international trade engage more extensively in efforts to reduce the environmental impact of their activities by adopting environment-friendly strategies (i.e., implementing new practices and technologies that reduce pollution and resource use). In particular, we examine the direction of this relationship for different levels of industry integration in Global Value Chains (GVCs) and different degrees of GVC trade partners’ environmental performance. Our econometric analysis uses data from 4,886 manufacturing firms from 21 lower and upper middle-income countries in Central Asia, Eastern Europe and the Middle East and North Africa. The results suggest a positive association between firm openness to international markets and intensity of use of environmentally friendly practices and technologies. This relationship becomes stronger for higher levels of environmental performance by industry GVC partners and weaker levels of industry integration in GVC.