Environmental implications of improving global value chain participation via trade diversification: Offsetting the effects of resource rents

This study explores the moderating effect of trade diversification on the relationship between global value-chain participation and natural resource rents for 106 nations from 2005 to 2018. The study employs an extended system Generalized Method of Moments (GMM) model to address potential challenges related to endogeneity and serial correlation. The results demonstrate how natural resource rents inhibit global value-chain participation by multinational firms, deterring them from investing in resource-dependent economies and restricting their integration into global trade networks. Trade diversification serves an essential moderation role in this process; nations with more diverse trade arrangements are less vulnerable to resource rents' negative effect on global value-chain participation. Furthermore, this study unleashes the significance of employing ecologically sustainable methods to mitigate resource exploitation's detrimental environmental impacts and ensure a balanced economic development model. Diversifying trade links and export quality improvement efforts with diversifying trade can increase trade links, strengthen international value chains and facilitate adoption of new technologies and information encouraging participation in global value chains. Our findings underscore the significance of policy actions which promote trade diversification to better manage natural resources, leverage resource rents for long-term economic growth and build resilience against future economic shocks.