On the Mechanism of International Technology Diffusion for Energy Technological Progress

Abstract

International diffusion of energy-saving technologies has received considerable attention in recent energy and climate economics studies. As a helpful methodological complement to the existing large-scale CGE/IAM–based modelling for energy and climate policy studies, this paper contributes to a transparent analytical model for an economically intuitive exposition on the fundamental mechanism of international technology diffusion for energy technological growth. We first develop an efficiency-improving vertical innovation model where energy technological progress is specified as an improvement in primary energy use efficiency. Then a variety-expanding horizontal innovation model is presented where energy technological progress is described as an expansion of energy technology variety. We show that in both models there is a cross-country convergence in the growth rate of energy technology in a long-run balanced growth path, but the absolute levels of energy technology tend to diverge due to cross-country differences in indigenous innovation efficiencies and knowledge absorptive capacities. An economy with a stronger capacity of absorbing foreign knowledge diffusion and undertaking indigenous research tends to have a higher level of energy technology.

Keywords: Technological Progress, Energy Technology, International Technology Diffusion, Endogenous Technological Change

JEL Classification: Q55, Q58, Q43, Q48, O13, O31, O33, O44, F18