Koichiro Ito, University of Chicago

Paper: Global Policy Spillovers: Evidence from the Multinational Automobile Industry

Abstract: In the globalized economy, a country’s domestic policy could produce global spillover effects through products manufactured by multinational firms. We investigate this phenomenon in the context of environmental policies for automobiles. First, we empirically show that Japan’s fuel economy subsidy led to improvements in fuel economy for cars sold in the U.S. market. Second, using a structural model of differentiated product markets, we demonstrate that cross-market links in revenues and costs could highlight the potential mechanism behind the global spillovers. Finally, we use the estimated model to conduct counterfactual policy simulations, quantifying the welfare effects of the global policy spillovers.