International competitiveness and the auto industry: What's the role of motor vehicle emission standards?

This paper reviews the political science, regulatory, and economics literature to illuminate the international competitiveness impacts of motor vehicle emission standards. The primary question the authors consider is whether motor vehicle emission standards adopted in one market will create a future competitive advantage for domestic manufacturers when policy diffusion leads other markets to adopt similar emission standards at a later date. Related questions they consider include the impact of vehicle emission standards on technology innovation, “learning by doing,” and economies of scale; the diffusion of emission standards to other markets; and the impact on the location of research and development, assembly plants, and component supplier production facilities.

Scholars have found that countries that adopt strict environmental standards secure an early-mover advantage for their firms by creating conditions in which economies of scale can develop, network effects can grow, and technological “learning by doing” can take place. Specifically, the literature tends to support the following observations:

1. Strict, well-designed environmental regulations spur innovation
2. Domestic firms achieve a first-mover advantage through “learning by doing” and economies of scale
3. Policy diffusion of emission standards leads other markets to adopt similar standards and associated technologies after a brief lag time
4. Domestic manufacturers (automakers and suppliers) are able to comply with standards adopted in other markets at lower cost than their competitors
5. Global automakers exporting to markets with stringent emission standards tend to encourage their home governments to raise their standards to gain a competitive advantage over other, non-global domestic manufacturers
6. Research and development, assembly plants, and component supplier production facilities tend to be located in those markets with advanced