Does legal system matter for directed technical change? Evidence from the auto industry

ABSTRACT

Does the effect of fuel taxes on clean innovations (e.g. hybrid technology) depend on the legal system’s rigidity? Using 1986–2005 data from more than 1900 firms, evidence suggests that auto-industry firms located in civil law (with more rigid laws) countries increase clean technology patenting more than common law (with more flexible laws) firms when the tax-inclusive fuel price rises. A rigid legal system appears to raise clean technology innovation.

KEYWORDS:

• Innovation
• clean technology
• directed technical change
• legal origin
• energy policy

JEL CLASSIFICATION:

• O31
• K49
• Q58
• Q48

Acknowledgements

We thank Antoine Dechezleprêtre and John Van Reenen for kindly sharing data, and the helpful referee for useful comments. Fredriksson gratefully acknowledges financial support from the College of Business, University of Louisville. The usual disclaimers apply.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The firm’s own stock of patents is included among the regressors.

² Common law countries included: Bermuda, Hong Kong, Belize, Dominica, Thailand, Singapore, South Africa, Israel, UK, Australia, India, USA, Ireland, Sri Lanka, Cayman Islands, New Zealand, Barbados. French civil law countries included: Peru, Netherlands, Turkey, Italy, Belgium, France, Indonesia, Brazil, Luxembourg, Russia, Netherlands Antilles, Greece, Venezuela, Argentina, Mauritius, Malta, Spain.

³ Another option involves assigning a percentage of expected sales in common and French civil law countries, as with fuel prices. However, this option is unfeasible due to data and parameter interpretation problems. Fuel price data lack satisfactory availability outside the 25 countries used by ADHMV in the fuel price construction. Furthermore, interpreting interacted variable coefficients with the ADHMV estimator is clearly beyond the scope of this article.

⁴ See Appendix C, ADHMV, for a complete description of the variables’ construction.

⁵ See also ADHMV.

Additional information

Funding

This work was supported by the College of Business, University of Louisville.