Mengjia (Maggie) Hu

A leading foreign manufacturer producing and sourcing locally can hurt domestic rivals through competition and help them through spillovers that lower their production and new-product introduction costs. I estimate a model of demand, pricing, and product introduction to study these forces in China’s electric vehicle (EV) market after Tesla began producing cars in Shanghai in 2019. Rival EVs sharing Tesla’s core-part suppliers saw larger marginal-cost declines than other rival EVs. Launch costs for battery-electric vehicles (BEVs) similar in size to Tesla’s locally produced models also fell relative to those for smaller BEVs. Counterfactual analysis shows that competition from Tesla’s Shanghai-built models discourages rivals from launching new products, while cost spillovers encourage them; on net, rivals’ new product offerings rise by 32 percent relative to a market without Tesla’s local manufacturing. With both competition and cost spillovers present, consumers receive most of the domestic welfare gain; endogenizing rival offerings increases their gain by about 27 percent. Domestic producer gains accrue mainly to EV start-ups, whose models share more suppliers with Tesla and are closer to its models in size, while established Chinese automakers lose.

Prior to 1978 EPA regulated nonattainment with the Clean Air Act using Air Quality Control Regions (AQCRs), switching to counties in 1978. We find that EPA’s official AQCR nonattainment designation for total suspended particulate matter (TSP) in 1972 had no causal effect on ambient TSP. Nor do we detect evidence that being in nonattainment in the AQCR regime affected employment in pollution intensive manufacturing industries. In contrast, when nonattainment is confined to smaller areas—counties in 1978 or counties with monitor violations in 1972, we find evidence that nonattainment decreased both ambient TSP and manufacturing employment.