Extended abstract
Convergence and divergence in world income and emissions: New insights from MRIO models
Lucía Bolea*, Rosa Duarte and Julio Sánchez-Chóliz
*corresponding author:
Department: Economic Analysis Department
University: University of Zaragoza, Gran Vía 2, 50005 Zaragoza (Spain)
Subject area: Growth, development, competitiveness and territorial inequalities
Abstract:The international economic crisis of 2008 represented an abrupt change in the processes of economic growth and regional convergence experienced in the last decades in many areas of the world. Changes in economic magnitudes but also in international markets and economic structures had their impacts on the environment. Once the most devastating effects of the crisis have passed, there is renewed interest for new assessments of the processes of economic, social and environmental convergence, identifying the factors that contributed to the change in the trend observed since 2008. In this work, departing from the traditional indicators of convergence, and using the multisectoral and multiregional perspective provided by multiregional input-output models (MRIO) and their associated databases, we consider the role of sectoral specialization, countries and their trade relations in the current evolution of global income and environmental convergence or divergence. Thus, based on an MRIO, we study the behavior of economic and environmental indicators in the world between 2000 and 2014, as well as the existence σ-convergence, incorporating the novelty of the study of convergences associated with environmental factors. To do this, the information provided by the World Input-Output Database (WIOD) is used.
In addition to the new view of income convergence, we also evaluate the productive, technological and demand patterns in terms of associated environmental emissions. The results bring new dimensions to the issue of international inequality in income and environment, and open new discussions on the relocation of environmental damage, comparative advantage and environmental footprint.
More specifically, we base our analysis on the structural, technological and environmental factors that have led to the process of convergence or divergence between countries, using a multi-regional and multi-sectoral perspective. We study the parallelism in the evolution of sigma-convergence on global value-added (embodied value-added) and on global emissions (embodied emissions), i.e., on the emissions generated in all world and incorporated by each country in their final products. We use data from the World Input-Output Database (Release 2013 and 2016) for income and emissions in some years. We focus on the regional and sectoral nature of the convergence process.
Methodologically, our starting point is a multi-regional input-output (MRIO) model for the world economy, environmentally extended to CO2 emissions. We analyze two types of convergence: the convergence on the emissions and income generated directly by each country and the convergence on the emissions and value added generated in all world economies and incorporated in the final products of each country, showing the transmission of income and pollution through across the countries and sectors involved in the global production chains. Once these emissions are computed, we focus on the existence of sigma convergence (Cuadrado-Roura et al, 1999; Sperlich and Sperlich, 2012; Goschin et al, 2014). To do this, we study the evolution of the standard deviation of the log of income and emissions, as follows:
wherexit is the variable of interest for country i in year t, is the dispersion measure of the countries in the sample in a specific year t; is the average of the logarithms ofthe VA or emissions data analyzed, and Nrepresents the number of observations in each study.
The analysis is complemented in two waysin this work. First, the multi-sectoral nature of the MRIO information allows us a more detailed study of the economic sectors involved in the process of sigma convergence around the world. In this regard, we compare the results obtained at the more aggregated country level and those appearing when sectoral disaggregation is used. Second, we analyze the evolution of the relationship between environment impacts and generation of income from a convergence perspective. Moreover, we study convergence through the global value chains (i.e., in the value-added or emissions generated in the world and embodied in the final demand of countries) and analyze the evolution of convergence in their different components (domestic and trade components). While the traditional measures of convergence based on direct value added or emissions, the study of convergence in global value chains approximates us to the driver role of final demand patterns (consumption and investment patterns) as sources of income convergence or divergence.
After performing part of the analysis, some preliminary results are shown. The data correspond to value-added are expressed in millions of dollars and the emissions data are in kilotons[1]. In this way, following the analysis of Fagerberg and Verspagen (2014), it is carried out a study about the contributions of domestic and trade components to emissions and income growth. Just to illustrate the analysis, in Figure 1 we show the contributions in terms of environmental CO2 emissions.
Figure 1. Contributions of domestic demand and trade component to average emissions, 2000-2014
Source:Own elaboration
As can be seen, the trade component for the majority of countries (except China, Indonesia and India) has been a main contributor to the global emissions growth in the world. Although, the case of China is special and quite different mainly due to its huge economic growth, which has caused both its domestic production and trade with the rest of the world to generate the largest amount of CO2emissions in the world.
The study is also carried out taking into account the economic structural breakdown of 2008,offering a scenario of several behaviours in all world regarding recent economic growth, its impacts on the environment and leading factors. Our results suggest that in the period 2000 to 2008 (the expansive period), the international trade between countries caused a large increase in air emissions, leading to an increase in global pollution, especially in the case of some Central European countries such as Denmark, Lithuania and Luxembourg. After the economic crisis we can observe an important change in the role of domestic and trade as sources of pollution growth. Regarding income, we can appreciate that the domestic demand was the main generator of income in the world until 2008, highlighting some countries like Romania with a contribution of internal demand to income growth of 10%. However, the arrival of the international crisis has also caused some changes in income generation and distribution. In this case, the decrease in the weight of domestic production as the driver of income is the most prominent.
After this analysis, the following questions are, in consequence, whether these differential behaviours resulted in an increasing convergence or divergence between countries, which have been the contributing factors and how we can evaluate the results from an integrated global perspective.
Over time, many studies have focused on convergence in different domains and in different types of convergence (sigma and beta). With the arrival of the international crisis in 2008, there were a number of changes in the macroeconomic variables, which led to an increase in the debate on convergencein income and its consequences on the environment.As a result of this interest in the phenomenon of convergence, our objective in this study is to evaluate the recent evolution of the sigma convergence from a new perspective, paying attention to the multi-sectoral and increasingly multi-regional nature of emissions and income generation. Thus, traditional measures of economic convergence are extended to a multi-regional input-output framework, which allows us to study how productivity is translated to convergence through the global supply chains, and to identify the technological and structural bases of the convergence.
As a result of this interest in the phenomenon of convergence, our objective in this study is to evaluate the recent evolution of the sigma convergence from a new perspective, paying attention to the multi-sectoral and increasingly multi-regional nature of emissions and income generation. Thus, traditional measures of economic convergence are extended to a multi-regional input-output framework, which allows us to study how productivity is translated to convergence through the global supply chains, and to identify the technological and structural bases of the convergence.
The study carried out so far shows that there is a clear breakpoint in the process of convergence in emissions and income, around 2008, a large increase in the role of domestic demand as a generator of CO2 emissions to the atmosphere and a differential contribution of sectors according to their technological nature.More specifically, our study of the convergence process around the world and its distribution among countries for the period 2000-2014 shows that the role of domestic demand (private and public consumption and investment demands) has widely expanded and strengthened, particularly in certain countries and sectors, that is to say that there are two clear groups of countries: countries that have experienced a great economic growth in the last years, also have undergone a great increase of their levels of pollution, of their levels of CO2 emissions to the atmosphere; and countries that have not grown too much after the crisis and therefore have not increased their levels of pollution.These two phenomena in income and emissions have caused the first results obtained to be seen a process of divergence between countries, especially after the outbreak of the crisis of 2008.The results obtained in this work are preliminary, so it is necessary to go much deeper in the analysis of these issues. This is a first approach to the study of convergence in the economic and environmental variables in the input-output framework.
Keywords:Income, environment, emissions, economic growth, inequality, convergence.
JEL codes: F43, O5, O50, R11, R15
BIBLIOGRAPHY
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[1] The units of the magnitudes are those provided by the WIOD database.