From carbon leakage to (re)industrialisation: An assessment of the ecological footprint of imports in developed countries

By resorting to carbon leakage, developed countries can maintain their position as leaders in climate action, but they are indirectly polluting through the consumption of imported manufactured goods. Therefore, using production-based environmental indicators may not capture carbon leakage and, consequently, control it. To overcome this limitation, a Panel Vector Autoregressive model was conducted to analyse whether developed countries’ investment outflows encourage imports with a high ecological footprint from developing countries. The main findings show that Foreign Direct Investment outflows induce greater imports (both total and intermediate goods). The results also disclose that a shock in imports justifies about 25.1% of the forecast error variance in ecological footprint after 15 years, and when the imports are intermediate goods from the industrial sector, the ecological footprint of developed countries aggrandises. One can also observe that a shock in energy transition justifies, after 15 years, about 10% and 8% of imports and outward foreign direct investment forecast error variance, respectively. In addition, the impulse response functions show that energy transition curbs imports from developing countries and encourages outward Foreign Direct Investment. One can, therefore, conclude that energy transition plays a central role in reshaping the current Global Value Chains while remaining an engine of globalisation. Sharing the benefits of energy transition is pivotal to maintaining industries in developed countries and attracting further investment. • Outward FDI boosts imports (total and intermediate goods) from developing countries. • Imports of intermediate goods from the industrial sector enlarge ecological footprint. • Outward FDI lowers ecological footprint. • Energy transition can redesign the current GVCs and potentially shortening them.