GVCs and environmental sustainability in MENA: Do digitalization and institutions make a difference?

Abstract

Currently, the advent of digitalization has profoundly altered the structure of Global Value Chains (GVCs), with implications for environmental sustainability (ENS). Notwithstanding its importance, the dynamics of participation in GVCs, ENS, and digitalization have not been thoroughly investigated in empirical literature. On the other hand, despite its rapid evolution and growing popularity, GVCs participation is rarely considered when analyzing factors in uencing ENS in the Middle East and North Africa (MENA) region. Extending this research line, the analysis scrutinizes the impact of GVCs participation on ENS in 15 countries in MENA between 1996 and 2018. The study further investigates the moderating impacts of two major policy variables, namely Institutional Quality (IQ) and Digitalization (DIGI). The study employs SYS-GMM panel method and Random Effects. The empirical results indicate that GVCs participation is environmentally useful in the MENA region. The ndings remain robust/similar when considering forward value participation linkages and oil-importing countries, whereas backward linkages deteriorate the region ENS. The ndings further reveal that the GVCs environmental impact is modulated through IQ and DIGI. IQ and GVCs are particularly complementary in promoting ENS in MENA and across both oil importing and exporting groups. Nonetheless, the GVCs interaction with DIGI produces a negative net effect. This negative effect is mitigated beyond a particular threshold of 10.23%, necessitating complementary policies related to the link between GVCs participation and ENS below this threshold. Additionally, the ndings a rm that FDI improves the environment, whereas natural resource rents degrade it, supporting the resource curse hypothesis for the MENA region. The study ndings provide new insights into achieving improved GVCs integration while maintaining sustainable environment.