Can China harness globalization to reap domestic carbon savings? Modeling international technology diffusion in a multi-region framework

- We develop a multi-region model to examine international technology diffusion for China's domestic carbon savings.
- Economic globalization generates a scale effect that harms domestic carbon savings.
- Knowledge globalization creates a technique effect that favors domestic carbon savings.
- Domestic emission-based climate policies induce innovation that helps lower climate mitigation costs.

This paper is devoted to examine the effect of globalization, particularly the international technology diffusion (ITD), on China's domestic carbon savings. Building on a multi-region global modeling framework, we explicitly consider both indigenous R&D and foreign technology diffusion as the dual drivers of endogenous technical change (ETC) for domestic carbon savings. Simulation results show that 1) traditional economic globalization policies like trade and FDI liberalization can boost the growth of production output, but this is at the cost of more fossil energy uses and carbon emissions; 2) technology globalization policies like removals of technology transfer barriers can facilitate the inflows of foreign technologies for domestic carbon savings; and 3) domestic emission control policies have an effect to induce restructuring and reorganization of production technology into a knowledge-intensive one and thus help lower climate compliance costs. Consequently, to create China's domestic carbon savings from globalization, policy should focus on promoting cross-country technology diffusion, beyond traditional cross-border transactions of product and capital goods. Domestic emission-based climate regulation should also be implemented to create market demand for carbon-efficient technologies and thus induce inflows of foreign advanced technologies.