The impact of FDI- and import-related technology spillovers from government-funded green energy R&D in developed countries on CO2 emissions in developing countries

This paper examines the impact of FDI- and import-related technology spillovers from government-funded green energy R&D in developed countries on CO 2 emissions in developing countries. It focuses on the G7 countries as source countries for these spillovers and uses panel data for up to 63 developing countries between 2009 and 2020 to analyze whether such spillovers exist and whether their impact depends on the share of FDI and imports from developed countries, respectively, in the GDP of developing countries. For the full sample, we find no evidence that import-related spillovers from government-funded green energy R&D in developed countries reduce CO 2 emissions in developing countries. In contrast, the results for the full sample indicate that reductions in CO 2 emissions in developing countries are driven by FDI-related spillovers of government-funded green energy R&D in developed countries and that these reductions increase with the share of FDI from developed source countries in developing countries’ GDP. These findings based on total stocks of FDI- and import-share-weighted government-funded green energy R&D remain qualitatively unchanged when we use disaggregated foreign R&D stocks by green energy categories. Subsample regressions suggest that the magnitude of these spillovers varies with the level of industrialization and GDP per capita. • Technology spillovers from government-funded green energy R&D in developed countries reduce CO 2 emissions in developing countries. • Such spillovers are mainly FDI-related rather than import-related. • Their impact is greater when the share of FDI from developed countries in the GDP of developing countries is higher. • The extent of such technology spillovers also depends on the level of industrialization and GDP per capita.