Regulatory emission limits for mobile sources and the Porter hypothesis: a survey of the literature

This paper reviews the available evidence on the relevance of the Porter hypothesis for automotive emission standards. It focuses on two channels through which the Porter effect may operate. First, there is evidence that emission standards for cars have had important effects on innovation at different levels in the supply chain (the “weak” form of the Porter hypothesis), without discernible long-run negative effects in industry performance. However, there is no strong evidence either that regulations lead to an overall increase in productivity (the “strong” version of the Porter hypothesis). Second, there is relatively strong evidence that 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. This suggests that imposing strict emission standards may bring some “first mover advantages” to the leading countries, in line with the Porter hypothesis.