Browsing by Subject "Labor Rights"

The late 1900s and the beginning of the 2000s saw a rise in global value chains. Foreign direct investments grew faster than international trade and CO2 emissions grew at unprecedented speeds. These two phenomena spurred a lot of research into carbon leakage trying to assess its magnitude and the reasons behind the reallocation of manufacturing. Developing countries have generally higher carbon intensity compared to developed countries and thus the reallocation of manufacturing has raised concerns over its climate impacts. EU is im- plementing a Carbon Border Adjustment Mechanism to prevent carbon leakage and to incentivize decarbonization globally. Carbon leakage has also been used to argue against stricter environmental regulation in developed countries. Therefore it is important to know what are the drivers behind the reallocation of manufacturing from low to high carbon intensity countries? Andreas Malm proposed the Fossil Capital Hypothesis to explain why the globalization of man- ufacturing results inevitably in higher emissions. In its simplest form, the hypothesis states that globally mobile companies face two opposing forces when deciding where to manufacture goods: cheap labor and the cost of infrastructure. As companies venture to less developed countries in search of cheap labor the cost of setting up adequate infrastructure increases. In the cross-draught of these two forces, companies end up setting up shop in low-middle income countries which are coincidentally the countries with the highest carbon intensities. This thesis assesses the empirical foundation of the Fossil Capital Hypothesis by analyzing three questions using panel regression: (1) whether high carbon intensity and low labor costs are corre- lated, (2) whether foreign direct investments flow to countries with relatively high carbon intensity and (3) whether labor costs are the main driver of foreign direct investments. The analysis shows that foreign direct investments flow to countries with high carbon intensity and that low wages are correlated with high carbon intensity. However, the analysis doesn’t find a correlation between low labor costs and a high influx of foreign direct investments. Therefore the analysis finds limited support for the Fossil Capital Hypothesis.