The current condition of the automotive industry in Canada is unsustainable, particularly due to growing global competition, the volatile price of oil, and environmental concerns. The solution to resolving these pressures and creating new competitive advantages within the Canadian automotive industry may be found in innovation targeting the development of alternative fuel vehicles. Based on the insights on innovation from Schumpeter and Porter, this research employs an institutional policy analysis approach. Historical analysis (Section I) highlights the factors of success for a dominant vehicle type and the importance of industrial policy in Canadian automotive manufacturing; while trade policy analysis (Section II) delineates the current scope of industrial policy in Canada, given the restraints of bilateral and multilateral trade agreements. Within this context, this research proposes that Canadian policy-makers can build on existing industrial policy for the automotive industry by refocusing it on the alternative fuel vehicle sector and implementing the following industrial policies within a cohesive national strategy: a) research and development subsidies; b) demand-side promotion; c) coordination and collaboration activities; and d) legal and regulatory frameworks reform.
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