North-South diffusion of climate-mitigation technologies: The crowding-out effect on relocation

Abstract

The deployment of cleaner production technologies is crucial to mit-igate the effect of climate change. The diffusion of technology from developed todeveloping countries can be done through different channels. It can be a businessdecision such as firms’ relocation, creation of a subsidiary or the adoption of tech-nology by southern firms, or it may be decided at government level. This paperinvestigates in a two-country model (North and South) the relationship betweenthe firms’ relocation and diffusion of mitigation technologies. We assume that bothcountries implement a carbon tax and there are two kinds of production technologyused: a relatively clean technology and a dirty one. This paper theoretically showsthat the diffusion technology by technology adoption, public transfer or subsidiarycreation induces a decrease in relocation, while technology diffusion via purchasingdirty southern firms may increase the number of relocated firms. The paper alsodemonstrates that technology diffusion may have perverse effects in the long run.Indeed, total emissions may increase with technology diffusion since southern firmsare more competitive.