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Content Protection with Foreign Capital

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  • Richardson, Martin

Abstract

The author considers local content requirements in a second-best environment with foreign capital flows and explores the consequences for domestic producers of final goods. The author derives an expression for the welfare consequences of content protection in a competitive general equilibrium model of two stages of production and shows that content protection initially has no effect other than expanding foreign firms at the expense of domestic ones. Once domestic producers exit, further tightening of the content requirement decreases production of the final good and increases component production, stimulating an inflow of foreign capital. Conflicting effects on domestic welfare are discussed. Copyright 1993 by Royal Economic Society.

Suggested Citation

  • Richardson, Martin, 1993. "Content Protection with Foreign Capital," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 103-117, January.
    • Handle: RePEc:oup:oxecpp:v:45:y:1993:i:1:p:103-17
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    Cited by:

    1. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
    2. Jie-A-Joen, C. & Belderbos, R.A. & Sleuwaegen, L., 1998. "Local content requirements, vertical cooperation, and foreign direct investment," Research Memorandum 001, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    3. Rachel McCulloch, 1990. "Investment Policies in the GATT," The World Economy, Wiley Blackwell, vol. 13(4), pages 541-554, December.
    4. Chao, Chi-Chur & Yu, Eden S. H., 1998. "Export-share requirements, trade balances and welfare: a two-period analysis," Journal of Development Economics, Elsevier, vol. 56(1), pages 217-228, June.
    5. Lahiri, Sajal & Mesa, Fernando, 2006. "Local content requirement on foreign direct investment under exchange rate volatility," International Review of Economics & Finance, Elsevier, vol. 15(3), pages 346-363.
    6. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1996. "Trade policy subtleties with multinational firms," European Economic Review, Elsevier, vol. 40(8), pages 1605-1627, November.
    7. 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.
    8. Rod Falvey & Geoff Reed, 2002. "Rules of Origin as Commercial Policy Instruments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 393-408, May.
    9. Higashida, Keisaku & Jinji, Naoto, 2006. "Strategic use of recycled content standards under international duopoly," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 242-257, March.
    10. Belderbos, Rene & Capannelli, Giovanni & Fukao, Kyoji, 2001. "Backward Vertical Linkages of Foreign Manufacturing Affiliates: Evidence from Japanese Multinationals," World Development, Elsevier, vol. 29(1), pages 189-208, January.
    11. Qiu, Larry D. & Tao, Zhigang, 2001. "Export, foreign direct investment, and local content requirement," Journal of Development Economics, Elsevier, vol. 66(1), pages 101-125, October.
    12. Bijit Bora & Peter J. Lloyd & Mari Pangestu, 2000. "Industrial Policy And The Wto," UNCTAD Blue Series Papers 6, United Nations Conference on Trade and Development.
    13. 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.
    14. Holger Görg & Frances Ruane, 1998. "Linkages between Multinationals and Indigenous Firms: Evidence for the Electronics Sector in Ireland," Economics Technical Papers 9813, Trinity College Dublin, Department of Economics.
    15. 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.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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