Working Paper: NBER ID: w26121
Authors: Dong Cheng; Mario J. Crucini; Hyunseung Oh; Hakan Yilmazkuday
Abstract: The early twentieth century provides a unique opportunity to explore the interaction of rapid technological progress and international trade barriers in shaping the worldwide diffusion of a new, highly traded good: the automobile. We scrape historical data from 1913 to 1940 on the quantity and value of passenger vehicles exported from the United States to 23 destination countries and measure five unique international frictions that prevented the both the pass-through of US automobile price declines from reaching foreign markets as well as much higher user costs (tariffs and excise taxes on fuel). We estimate a price and income elasticity of the demand for automobiles relative to an outside good. The price elasticity is between the macro and trade Armington elasticities reported in the contemporary literature. The estimated model captures both the vastly diverse levels of automobile adoption per capita across countries and the broad secular time trends. Relative price declines due to US technological innovation in assembly-line production and generally high international economic growth during the 1920s are reinforcing in the diffusion phase. The relative price decline abates during the 1930s while output generally collapses (through asymmetrically across nations), leading to large but heterogeneous reversals of the stocks of automobiles in most countries.
Keywords: automobiles; international trade; technological progress; price elasticity
JEL Codes: F1; L62; N60; N70; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in relative price of automobiles due to U.S. technological innovation (O49) | Increased adoption rates in various countries (O57) |
| Tariffs and excise taxes (H29) | Impact on adoption rates negatively (F69) |
| International frictions (F53) | Moderate the effect of price declines on adoption rates (D49) |
| Variations in real income (D31) | Significantly affect adoption levels (F69) |
| Price elasticity of demand for automobiles (D12) | Strong response of demand to price changes (D11) |
| Relative price decline (E31) | Significant driver of adoption (D16) |
| Differences in income levels and trade frictions (F61) | Critical in explaining cross-sectional variation in automobile stocks across countries (F29) |