Regulatory stringency, regulatory distance and the transfer of new environmentally sound technologies: Evidence from the automobile sector

Although environmental regulatory stringency has been invoked as one of the most important factors driving the transfer of environmentally sound technologies (ESTs), surprisingly few studies have explored its influence. Employing a recently-assembled dataset of automobile emission standards, and corresponding data on non-resident patent filing of automotive ESTs in 55 countries between 1992 and 2007, we examine the impact of environmental regulation on international technology transfer. Our analysis shows that an important factor shaping transfers is relative regulatory distance in that countries are more likely to receive newly-innovated technologies from source countries whose regulatory standards are “closer” to their own. Absolute stringency matters as well, although raising domestic environmental standards as such only leads to higher inflows of ESTs in developing countries. Novel to the literature, we also show that regulatory standards in the third markets of a country's trading partners also influence transfers: countries receive more ESTs from a specific source country where they export more to markets whose regulatory standards are similar to those of the source country of the transferred technologies.