Labor and environment in global value chains: an evolutionary policy study with a three-sector and two-region agent-based macroeconomic model

Abstract

AbstractThe world economy crucially depends on multi-layered value chains with high degrees of sector-related specialization. Its final products are of international character and serve the needs and wants of the global citizen. However, many production processes are causing severe damage to the environment and moreover create health hazard for workers and local populations. This research article focuses on the increasing global unequal economic- and ecological exchange, fundamentally embedded in international trade. Resource extraction and labor conditions in the Global South as well as the implications for climate change originating from industry emissions in the North are investigated with an agent-based model. The model serves as a testbed for simulation experiments with evolutionary political economic policies. An international institution is introduced sanctioning the polluting extractivist sector in the Global South as well as the emitting industrial capital good producers in the North with the aim of subsidizing innovation reducing environmental and social impacts. Both regions are modelled as macroeconomic complex adaptive systems where international trade is restricted to a three-sector value chain, originating from mining resources in the South that are traded to capital good producers in the North crafting machinery which is eventually traded to consumer good firms, both in the North and South. The main outcome of the study is that sanctions alone are not effective in countering unequal exchange. They only make a difference in combination with subsidies for innovation activities, which are protecting labor and reducing local pollution in mines as well as reducing carbon-emissions in capital good production.