A proposal of a modified theoretical framework and method for analyzing the development of the automotive industry under the impact of regulation

The project's topic is the technological change in the automotive industry (e.g., "cleaner" combustion engines and full electrification) under the effect of regulatory policies and their impact on the market structure with the emerging generation of new firms (including those from the People's Republic of China).

We aim to build a modified theoretical framework of the impacts of regulation on the development of the automotive industry in a historical time and to empirically test it on a selected case study in the EU.

The objective is broadly (1) based on the assumption of the path dependence and possible persistence of economic phenomena that unfold in time and the need to incorporate this assumption when considering technological change and addressing climate change mitigation. The objective derives its reasoning (2) from the literature on endogenous growth and directed technological change, which has been applied by Aghion et al. to the example of the automotive industry using the concept of path dependence. However, it is still lacking to develop a model of the causal effects of regulation on the automotive industry, focusing on its market structure and development in time while bearing in mind Stigler's seminal work and debate on the theory of economic regulation.

The project aims to use modern methods to derive causal inferences between economic variables and the regulatory environment. The intention is to select an appropriate empirical method for the final publication in the project's third year, e.g., regression analysis using fixed-effect instrumental variables, diff-in-diff analysis, or a synthetic control method.

We plan to extend the existing theory of endogenous and directed technological change using the path dependence approach to the market structure of the automotive industry. The project contributes to building on and extending the global literature on technological change and regulation (including carbon tax policy) and the literature on growth and regulation.

Moreover, the topic contributes to an increasing body of literature that studies the persistence and change of economic phenomena not only in technological change but also in economic development and institutions, economic geography, and macroeconomics, which build their models and empirical studies in historical time, with possibilities of persistence of economic or policy shocks and multiple equilibria.