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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.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 45 (1993)
Issue (Month): 1 (January)
Pages: 103-17

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Handle: RePEc:oup:oxecpp:v:45:y:1993:i:1:p:103-17

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Cited by:
  1. 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.
  2. Jie-A-Joen,Clive & Belderbos,René & Sleuwaegen,Leo, 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. 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.
  4. 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.
  5. 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.
  6. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
  7. 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.
  8. 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.
  9. Rachel McCulloch, 1991. "Investment Policies in the GATT," NBER Working Papers 3672, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.

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