International Knowledge Spillover and Technology Externality: Why Multilateral R&D Coordination Matters for Global Climate Governance

This paper investigates the mechanism of international technology cooperation and its effect on the timing and cost of global climate mitigation. I firstly present a simple analytical framework that describes how international R&D coordination works and its importance to climate change mitigation. This mechanism is then quantitatively examined in a numerical framework – a multi-region global CGE model that features cross-country knowledge spillovers and positive technology externality. Simulation results show that: (1) By internalizing the reciprocal externality of knowledge spillover, multilateral R&D coordination, as compared to non-coordinated innovation, can induce more R&D efforts of individual countries and hence global provision of knowledge that favors innovation across countries; (2) Enhanced R&D investments under international technology cooperation facilitate accumulation of productive knowledge assets, creating higher potential of economic growth and carbon savings in all participating countries (3) International technology-oriented agreements in the form of multilateral R&D coordination can synergize with conventional emission-based climate agreements to help achieve more environmental benefits (carbon savings) as well as lower the economic costs of emission control policies. By doing that, participation incentives of the major carbon emitters can be encouraged with an improved effectiveness of their collective efforts in global climate mitigation.