Early 20th Century American Exceptionalism: Production, Trade and Diffusion of the Automobile

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.