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Driven up the wall? Role of environmental regulation in innovation along the automotive global value chain

Suchita Srinivasan

No 52-2017, CIES Research Paper series from Centre for International Environmental Studies, The Graduate Institute

Abstract: Are environmental regulations imposed on downstream firms effective in spurring innovation in clean technologies by upstream firms? We use a novel firm-level dataset of global scope to study whether environmental regulations have percolated up the automotive global value chain, and led to innovation (measured by patenting in abatement technologies) by suppliers at different levels of the chain. Using a Poisson estimation methodology, we find that suppliers worldwide have responded to increasingly stringent emission standards imposed on automobile manufacturers (also known as original equipment manufacturers, or OEMs) by undertaking more innovation in clean abatement technologies; additionally, we find that the smaller the gap between the average environmental regulation suppliers face from the OEMs,and that in the country where the firm is located, the more the firm innovates. In addition, we provide evidence of a spread of these positive effects of regulation on innovation, with suppliers at different upstream levels responding positively to the downstream standards. This paper has important policy implications for the design of environmental policy instruments to induce innovation in clean technologies by firms along the value chain.

Keywords: Environmental Regulation; Global Value Chains; Patents; Automotive Industry (search for similar items in EconPapers)
JEL-codes: Q55 O31 Q58 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-int, nep-sbm and nep-tid
Date: 2017-06-14
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