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Understanding Local Content Decisions: Economic Analysis And An Application To The Automotive Industry

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  • Francisco M. Veloso

Abstract

ABSTRACT In industrializing regions, foreign investments often generate spillovers through regional backward links. This situation may create a gap between private and social valuations of resources, resulting in a level of local content below what would be optimal for the economy. This situation creates an opportunity for the enactment of domestic content regulations. This paper presents a model to understand how these policies condition the decisions of the economic agents and affect economic welfare. Then, it simulates the model using a case study of the automotive sector. Results suggest that, in certain conditions, this local content regulation can be welfare enhancing.

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  • Francisco M. Veloso, 2006. "Understanding Local Content Decisions: Economic Analysis And An Application To The Automotive Industry," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 747-772, October.
    • Handle: RePEc:bla:jregsc:v:46:y:2006:i:4:p:747-772
    DOI: 10.1111/j.1467-9787.2006.00476.x
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    Cited by:

    1. Chul‐Woo Kwon & Bong Geul Chun, 2009. "Local Content Requirement under Vertical Technology Diffusion," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 111-124, February.
    2. Shiliang Cui & Lauren Xiaoyuan Lu, 2019. "Optimizing Local Content Requirements Under Technology Gaps," Service Science, INFORMS, vol. 21(1), pages 213-230, January.
    3. Evans, David K. & Ferreira, Francisco & Lofgren, Hans & Maliszewska, Maryla & Over, Mead & Cruz, Marcio, 2014. "Estimating the Economic Impact of the Ebola Epidemic: Evidence from Computable General Equilibrium Models," Conference papers 332557, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Westin, Fernanda Fortes & Grottera, Carolina & Rennkamp, Britta, 2020. "Política de conteúdo local e incentivos financeiros no mercado de energia eólica no Brasil," Documentos de Proyectos 45598, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Issabayev, Murat & Rizvanoghlu, Islam, 2019. "Optimal choice between local content requirement and fiscal policy in extractive industries: A theoretical analysis," Resources Policy, Elsevier, vol. 60(C), pages 1-8.
    6. Macatangay, Rafael Emmanuel “Manny”, 2016. "Optimal local content requirement policies for extractive industries," Resources Policy, Elsevier, vol. 50(C), pages 244-252.
    7. Jae C. Jung & Khan-Pyo Lee, 2018. "Host Country Sourcing of Multinational Enterprises: A Corporate Social Responsibility Perspective," Journal of Business Ethics, Springer, vol. 152(3), pages 683-701, October.
    8. Kalyuzhnova, Yelena & Azhgaliyeva, Dina & Belitski, Maksim, 2022. "Public Policy Instruments for Procurement: An Empirical Analysis," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    9. Dorothee Flaig & Susan F. Stone, 2017. "Local Content Requirements Versus Tariff Equivalents: How We Measure Matters," The World Economy, Wiley Blackwell, vol. 40(5), pages 931-948, May.
    10. Uros Delevic & Irina Heim, 2017. "Institutions In Transition: Is The Eu Integration Process Relevant For Inward Fdi In Transition European Economies?," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(1), pages 16-32.
    11. Lema, Rasmus & Bhamidipati, Padmasai Lakshmi & Gregersen, Cecilia & Hansen, Ulrich Elmer & Kirchherr, Julian, 2021. "China’s investments in renewable energy in Africa: Creating co-benefits or just cashing-in?," World Development, Elsevier, vol. 141(C).
    12. Klueh, Ulrich H. & Pastor, Gonzalo & Segura, Alonso, 2009. "Policies to improve the local impact from hydrocarbon extraction: Observations on West Africa and possible lessons for Central Asia," Energy Policy, Elsevier, vol. 37(3), pages 1128-1144, March.

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