Global Policy Spillovers: How Environmental Policies Propagate through Product Attributes -- by Koichiro Ito, James M. Sallee, Jonathan (Andrew) Smith

How should policymakers evaluate policy impacts when firms design products for global markets? Standard economic analyses typically focus on domestic outcomes, implicitly assuming that policies affect only the jurisdiction in which they are enacted. Yet multinational firms often harmonize product design across markets, creating the potential for policies implemented in one country to generate global spillovers through changes in product attributes. We call this phenomenon "attribute propagation" and develop a framework to measure and assess its quantitative importance. Applying this framework to an environmental policy affecting automobiles, we find that a fuel-economy subsidy in Japan led to significant improvements in the fuel economy of vehicles sold in the United States. We then develop a model of multinational automobile markets featuring cross-market cost complementarity as a key mechanism driving attribute propagation. Using the estimated model, we conduct counterfactual simulations to quantify environmental benefits accounting for the policy’s global spillover effects. We find that global spillover effects are first-order—a majority of the CO2 emissions reductions induced by the Japanese policy arise through its impact on the U.S. automobile market. These findings suggest that standard economic analyses that abstract from attribute propagation can substantially understate the full policy impact. More broadly, attribute propagation provides a new lens for evaluating environmental, safety, antitrust, and technology policies in a global economy.