Working Paper 9 - Abstract

Although there is evidence that CO­₂-efficiency enhancing innovations in one country diffuse into other countries to contribute to the goals of climate change mitigation, very little is known about the conditions under which such international spillovers are most likely to take place. Our contribution in the present article seeks to address this gap by examining whether the strength of cross-border CO₂-efficiency interdependence working through import ties and inward foreign direct investment (FDI) stocks is greater in (a) countries with lower existing levels of domestic CO₂-efficiency and (b) countries with greater social capabilities in terms of a better educated workforce and a less risky institutional environment for investment. We find that less CO₂-efficient countries and countries with a more investment-friendly institutional environment experience stronger FDI-weighted CO₂-efficiency spillovers, whereas a higher level of human capital increases domestic receptivity to import-weighted international spillovers.