Regulatory Emission Limits for Cars and the Porter Hypothesis: A Survey of the Literature

Abstract

This paper reviews the available evidence on the relevance of the Porter hypothesis for automotive emission standards. The literature confirms that emission standards for cars have had important effects on innovation (the ‘weak’ form of the Porter hypothesis). However, there is no evidence that regulations lead to an overall increase in productivity (the ‘strong’ version of the Porter hypothesis). In line with the Porter hypothesis, strict emission standards may bring some ‘first mover advantages’ to leading countries. For instance, countries are more likely to have more stringent domestic vehicular emission standards if they export more automobiles and automobile components to countries which themselves have more stringent vehicular standards. There is also (mixed) evidence that countries which receive more inward foreign direct investment in the automotive sector are more likely to have more stringent domestic emission standards.