The evolution of household-induced value chains and their environmental implications

Abstract

The growing fragmentation of production processes and expansion of international trade in the last decades have increased the scope and complexity of value-added chains worldwide causing a rearrangement of sectoral linkages intra- and inter-regionally. In terms of economic spillovers, this implies that a dollar entering a particular economy nowadays follows a different path than a decade before, permeating in longer interregional feedback loops and creating additional multiplier effects outside its region of origin. However, it also implies that the environmental burden that such this dollar generates has changed in scale and spatial distribution. In this paper, we explore the evolution of these “paths” over the period 1997–2008 and highlight the main drivers of observed structural changes that contribute to the surge or decline of the spatial distribution of economic spillovers and greenhouse gases emissions. We specifically study the effects of an increase in income in the United States, the country with the largest trade volume in the world. We introduce an extended version of the Temporal Leontief Inverse (TLI) framework that allows tracing the evolutionary path of the American households' multiplier in a quasi-dynamic fashion, isolating the contribution of expenditure patterns, income, trade and foreign structural change to the temporal evolution. We find similar growing multiplier effects inside and outside the US due to services and manufacturing respectively, but a declining local environmental burden due to changes in interindustry relations inside the US with declining manufacturing and a reduced emission intensity. We also highlight the fragmentation process with declining foreign intraregional spillovers and increasing trade spillovers