Innovation and trade in the automotive industry: evidence from European countries (1990-2018)

The goal of the paper is threefold: 1) to empirically investigate whether out-of-equilibrium conditions in international economic performances (exports & imports) are correlated with greater innovative efforts (R&D expenditures) in the automotive industry, by means of both descriptive and inferential techniques; 2) to explore, by using descriptive means, 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 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. Our empirical analysis, based on a panel sample of European countries between 1990-2018, provide substantial support to the hypothesis that a “creative response†to out-of-equilibrium export conditions drives innovation also in the automotive industry. Finally, our study confirms the existence of a self-reinforcing loop between exports, imports and innovation in the automotive industry, which is yet mediated by the industry size, suggesting that the economies of scale are still the major driver of the sectoral growth and innovation capability.