Is there a pollution haven in European Union global value chain participation?

Abstract

This paper aims to test the pollution haven hypothesis within the European Union (EU), especially among newcomer countries, through the participation in global value chains (GVCs). The study used a combination of multiregional input–output method and multilevel mixed econometric analysis to investigate the relationship between global value chain trade flows, foreign direct investment flows, energy consumption, and carbon emissions across countries, sectors, and time. The study tested both the “pollution haven” and “pollution halo” hypotheses and found a non-linear relationship between foreign capital flows and carbon emissions, which became less relevant after the economic integration process. The results suggest the existence of a pollution haven in Europe. Although Eastern economies still exhibit problematic issues in relation to pollution control, they have made significant progress in reducing their emissions intensity. The conclusions include some policy recommendations based on the main findings of the research.