Innovation dynamics in the European automotive industry: the Schumpeterian role of car trade in the supply chain

Publication Type:

Conference Paper


Gerpisa colloquium, Brussels (2023)


The self-reinforcing dynamics of innovation and globalization is a characteristic feature of both advanced and emerging economies in the last decades (IMF, 2018). In this paper, we investigate such relation, its determinants and whether there exists a loop between the two trends for the automotive industry in 21 European countries over the time period between 1990 and 2018.

The global and regional integration in the automotive industry has been widely understood (Sturgeon et al., 2009; Gracia & Paz, 2017). This is especially true in Europe, which is home of some of the major global Original Equipment Manufacturers (OEMs) and where the automotive industry is a major economic player.

While the innovation (Smitka & Warrian, 2016) and trade (Sturgeon et al., 2009; Economics C., 2014; Bezic & Galovic, 2015) dynamics of the automobile sector have received scholarly attention per se, very few studies have explored the complex interplay between the two dimensions with an exclusive focus the industry (Chamsuk aet al, 2017; Rua & Ferreira, 2021) and no one has focused on the European case as a whole yet.

This paper aims at filling this gap. In fact, our paper is inspired by recent studies investigating the role of international economic performances in shaping countries’ innovative effort and intensity in multiple manufacturing sectors (Antonelli and Feder, 2022a; Antonelli and Feder, 2022b; Antonelli and Feder, 2021a; 2021b). It intends to explore the dynamics relating cars’ import & export with innovation propensity in the European auto sector, by using the Schumpeterian lens (Schumpeter 1942, 1939).

More specifically, the goal of the paper is threefold: 1) to empirically investigate, by means of both descriptive and inferential techniques, whether innovative effort (R&D expenditures) in the automotive industry is the result of a “creative response” deriving from out-of-equilibrium conditions in international economic performances (exports & imports); 2) to explore, by using descriptive methods, whether and which countries display the abovementioned path, in search for possible local-specific dynamics; 3) to provide empirical evidence in support of the existence of a “circular” relation or a self-feeding loop between trade indicators (exports & imports) and R&D expenditures in the European automobile sector, by using an appropriate econometrical strategy inspired by the “Crépon-Duguet-Mairesse” (CDM) method (Crepon et al, 1998).

Therefore, the ultimate goal of the present study is to investigate whether and how countries’ sectoral trade competitiveness and openness affect their propensity to innovate in the automotive industry, by testing the abovementioned specific evolutionary dynamics.

The results provide substantial empirical support to the hypothesis that a “creative response” to out-of-equilibrium export performances drives innovation also in the automotive industry, even though the innovation patterns shown by the countries with low levels of international competitiveness of their auto industry reveal the persistence of path dependency dynamics in the sector.

On the other hand, opposing results have been found concerning car imports and innovative propensity; in fact, while our econometric analysis reveals that car imports do stir innovation (positive sign of the non-quadratic variable) in auto industry, but the pattern of innovation is not driven by out-of-equilibrium values of the imports (negative sign of the quadratic variable), our graphical inspection reveals a ‘smoothed’ U-shaped relation between import and innovation. The apparent contradiction of these findings can be overcome by analysing the average distribution of imports over innovation expenditures, where we observe relatively high levels of car imports in countries with high level of R&D expenditures in automotive, that can be explained by the prevalence of globalization dynamics, e.g., offshoring cost-opportunity, over innovation ones, e.g., knowledge spillovers and imitative behaviours.
Finally, our study confirms the existence of a self-reinforcing loop between exports, import and innovation in the automotive industry, suggesting that trade openness can help sustaining the growth of the sector.

This study opens up interesting opportunities for further investigations on the role of trade competitiveness in steering the so-called “twin transition”, namely the ecological and digital transformation of the auto industry and its supply chain, which is at the core of the European agenda.

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