The Effects of Domestic and Foreign Green Technology on Domestic CO2 Emissions and Domestic Total Factor Productivity

Abstract This study simultaneously examines the effects of domestic green technology and spillovers of foreign green technology on both domestic carbon dioxide (CO 2 ) emissions and domestic total factor productivity (TFP). Specifically, we examine international spillovers of green technology through imports of environmental goods and foreign green technology spillovers in disembodied form. By applying panel cointegration techniques and causality tests to data for the G7 countries over the period 1994–2019, we find that both domestic and foreign green technology simultaneously lower CO 2 emissions and increase TFP in the long run. We also find that long-run spillovers of foreign environmental technology to domestic CO 2 emissions and domestic TFP occur through imports of environmental goods, rather than through disembodied technology transfer. Since TFP is a common measure of the stock of technological knowledge and a key determinant of economic development, our results suggest that green technology eliminates the trade-off between reducing CO 2 emissions and promoting economic development.