How embodied carbon in trade affects labor income in developing countries.

With the growth of international trade, the geographical separation of production and consumption links of goods has become increasingly common. Commodity-consuming countries can transfer carbon emissions generated in the production of commodities to commodity-producing countries through foreign trade while meeting their domestic consumption demands and emission reduction targets. This issue of embodied carbon emissions in international trade has received wide attention in recent years and has exerted significant impact on the labor income share of developing nations. This study determines the relationship between carbon emission and labor income share in the imports and exports of intermediate products from the perspective of the global value chain. Empirical results show that in developing countries, labor income share has a negative relationship with trade and a positive one with embodied carbon emission. Furthermore, to distinguish the heterogeneity between industries and verify the hypothesis, we classified 57 sectors into 7 main industries based on the method of Meng et al. (2018). Specifically, labor-intensive exports and technology-intensive imports increase labor income share while technology-intensive exports and labor-intensive imports reduce it. In addition to the light industry, the upgrading of women's employment structure can promote the increase of labor income share in host countries. The policy relevance of this study rests on its findings that developing countries can increase their labor income share through imports related to technology-intensive industries and exports related to labor-intensive industries; and that countries worldwide can fundamentally reduce embodied carbon emissions in trade by means of innovations in science and technology to realize sustainable development of the environment, economy, and society.