Clean Development Mechanism, Technological Diffusion Effect and Economic Growth

The reduction of GHG emission has become an important issue in the world since 1992. The「clean development mechanism」has been proposed allowing the non-Annex I countries to join the joint-implementation project in 1997 Kyoto Protocol. However, there are a few researches that deal with it till now. It is believed that the issues of pollution abatement, technological diffusion effects, and economic growth have trilateral relationships. But most studies talked about two issues among them only. Keeler & Zeckhauser (1971), Brock (1977), Tahvonen & Kuulu-Vainen (1991), Huang & Chen (1993), and Huang & Lee (2000) believed that pollution abatement would affect the economic growth. Milliamn & Prince (1989) and Goulder & Ma-Thai (2000) concluded that pollution control could generate technological diffusion effects. Barro & Sala-I-Martin (1995, 1997) employed the optimal control model to discuss the relationships between technological diffusion effects and economic growth. This study applies the optimal control theory that is similar to Barro & Sala-I-Martin (1997) and Goulder & Ma-Thai (2000) applied. It is to discuss the impacts of technological diffusion effects on economic growth of the investing country and the host country, respectively, under the clean development mechanism. Four conclusions are obtained as follows: 1.The investing country has higher economic growth rate with more CO2 emission under the clean development mechanism. 2.The country with advanced technology of CO2 abatement usually has higher economic growth rate. This is because the country can accumulate intermediate inputs easily and is treated as the source of technological progress and the reason of increasing economic growth rate. 3.The sum of two countries’ CO2 emission can reach the proposed level under CDM. Meanwhile, each country can also promote economic growth rate respectively. The investing country gets all CERs from the host country and then increases its products and economic growth rate under CDM. The host country can obtain technological diffusion effect that induces the higher growth rate by applying the advanced CO2 abatement technology. 4.In terms of stable equilibrium, the increasing rate of economic growth for the host country is higher than that in the investing country. Two countries’ economic growth rates will converge to the same level finally. However, the nominal output level of investing country is always higher than that of the host country under CDM.