Environmental Policy and Induced Technological Change: Evidence from Automobile Fuel Economy Regulations

Takahiko Kiso* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)
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This paper investigates whether environmental or energy-efficiency regulations induce innovations in relevant technologies through focusing on the tightening of Japanese fuel economy regulations in the 1990s and the early 2000s. Unlike previous studies that analyze patent data, I use vehicle-level specification data for 1985–2004 to estimate whether regulatory pressure accelerated technological progress in fuel efficiency. I compare Japanese automakers with selected American and European automakers in a difference-in-differences framework. The estimation results provide strong evidence for induced technological change: conditional on other vehicle attributes and the production cost, the regulatory tightening induced at least a 3–5% improvement in the average Japanese vehicle’s fuel economy relative to a counterfactual case with no regulatory change, an effect that it would have taken at least 4–7 years for automakers to achieve with no pressure from fuel economy regulations or fuel prices.
Original languageEnglish
Pages (from-to)785-810
Number of pages26
JournalEnvironmental and Resource Economics
Early online date21 May 2019
Publication statusPublished - Oct 2019

Bibliographical note

Open Access via Springer Compact Agreement


  • vehicles
  • fuel economy regulations
  • induced innovation
  • technological change
  • Induced innovation
  • Technological change
  • Fuel economy regulations
  • Vehicles
  • US


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