Chip price shocks and CO2 emissions in Brazil

Purpose We examined the impact of chip price shocks on fluctuations in Brazilian macroeconomic variables and carbon emissions (CO2). Design/methodology/approach Employing a global vector autoregressive model from January 1995 to December 2019, we constructed a representation of the world economy to capture spillover effects. Findings Our analysis revealed that chip price shocks lead to reductions in imports, industrial production and CO2 emissions. Investigation into transmission channels suggested that chip prices influence emissions through their effects on industrial production and international trade. Our shock identification underscored that supply chain disruptions lead to cleaner production processes, driven by increased green investments and renewable energy production rather than by the consumption of renewable energy. Our findings suggest that companies shift their operations toward cleaner energy sources. We further show that US carbon emissions significantly contribute to Brazilian CO2 variance. Practical implications These results emphasize the significant influence of chip prices in precipitating economic downturns, fostering cleaner production practices among companies and altering gas emissions in an emerging market economy. Originality/value Our originality and contribution to the literature lie in constructing an empirical system that treats Brazil as a small open economy susceptible to the influence of the world economy. We model gas emissions as a factor affecting both national and external economies, wherein changes in chip prices influence economic variables and subsequently impact the environment.