Financial subsidy, government audit and new transportation technology: Evidence from the new energy vehicle pilot city program in China

Abstract

As the global transportation sector grapples with challenges related to the energy crisis and climate change, New Energy Vehicles (NEVs) have emerged as a promising solution. In order to promote this new transportation technology, China has implemented strategic policies, such as the two-round NEV demonstration and pilot city program. Using a novel firm-month level panel data and the Difference-in-Difference (DID) strategy, this paper assesses the impact of the NEV pilot city program on NEV production from 2009 to 2016. Our findings reveal a significant increase in the production of Battery Electric Vehicles (BEVs) by 37.0% and Plug-in Hybrid Electric Vehicles (PHEVs) by 6.7%, primarily driven by financial subsidies in the private sector. The impact of the financial subsidy in both private and public sectors was further enhanced by government audit. Heterogeneous analysis shows the effect of the program was more pronounced in eastern regions, medium and small cities, and key cities for air pollution control. Based on the empirical findings, we discuss policy options for fostering new transportation technology in developing countries.