Economic, Social, and Environmental Determinants of Automotive Industry Competitiveness

Abstract

The study investigates how economic, social, and environmental factors influence the competitiveness of the automotive industry. Competitiveness in this context is measured using the Revealed Comparative Advantage Index, a commonly used indicator to evaluate a country's export performance relative to the global average. The study employs a fixed-effect model to analyze a dataset covering 14 Asian countries over a period of nearly three decades, from 1991 to 2020. This extensive timeframe allows for a comprehensive understanding of long-term trends and the impact of various factors on the automotive industry's competitiveness. The results of the study reveal several key findings. Firstly, the competitiveness of the automotive industry is positively correlated with economic performance. This means that countries with stronger economies tend to have a more competitive automotive industry. Economic performance, in this case, is likely driven by factors such as GDP growth, industrial output, and overall economic stability. These elements create a conducive environment for the automotive industry to thrive, as they provide the necessary infrastructure, investment, and market conditions. Secondly, human capital development is found to be a significant positive factor. This suggests that countries investing in education and training for their workforce see better performance in their automotive industries. Skilled labor is crucial for innovation, efficiency, and the production of high-quality automotive products, which are essential for maintaining a competitive edge in the global market. Urbanization is another positive factor identified in the study. As urban areas expand, the demand for vehicles increases, boosting the automotive industry. Urbanization often leads to improved infrastructure, better supply chains, and greater access to markets, all of which are beneficial for the automotive sector. Additionally, higher urban population densities can lead to more significant economies of scale and increased production efficiency. Tariff rates also positively impact the competitiveness of the automotive industry. Moderate tariffs can protect domestic industries from foreign competition, allowing them to grow and develop. However, it's crucial to balance tariff levels to avoid negative repercussions such as trade wars or reduced foreign investment. On the other hand, the study finds that lending rates and carbon emissions negatively affect the automotive industry's competitiveness. High lending rates increase the cost of borrowing, making it more expensive for companies to invest in new technologies, expand production, or improve efficiency. This financial burden can hinder the growth and competitiveness of the automotive sector. Carbon emissions, reflecting environmental impact, also pose a challenge. The automotive industry is under increasing pressure to reduce its environmental footprint. High levels of carbon emissions can lead to stricter regulations, increased costs for compliance, and potential reputational damage, all of which can negatively affect competitiveness. The findings of the study highlight the importance of considering external factors in strategies aimed at improving the competitiveness of the automotive industry. Policymakers should focus on managing lending rates to make borrowing more affordable, investing in human capital development to ensure a skilled workforce, and setting balanced tariff rates to protect and nurture the domestic automotive industry. Additionally, addressing environmental concerns and reducing carbon emissions are essential for sustainable long-term competitiveness.