International competitiveness and innovation dynamics in the European automotive industry: a creative, self-reinforcing and greening relation

To keep up with the challenges of a rising international competition, the European automotive industry needs to carefully assess and understand the interplay between its trade and innovation to promote business plans and investments in line with the new market and policy needs. Within this framework, this paper pursues a threefold goal: (1) to investigate whether out-of-equilibrium conditions in international economic performances are correlated with greater innovative efforts in the automotive industry; (2) to provide evidence in support of the existence of a self-feeding loop between trade and R&D expenditures in the European automobile sector and (3) to explore the role of the international competitiveness in the greening of the sector. Our empirical analysis provides substantial support to the hypothesis that a ‘creative response’ takes place in the face of out-of-equilibrium performances in exports, which trigger innovation, especially when they are above average. Our study also confirms the existence of a self-reinforcing loop between exports, productivity and innovation in the European automotive industry, which favours greener eco-innovations associated to hybrid and electric vehicles with respect to the brownish ones related to the traditional powertrain.