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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.

Suggested Citation

  • 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. 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.
    2. 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.
    3. 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).
    4. 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.
    5. 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.
    6. Shiliang Cui & Lauren Xiaoyuan Lu, 2019. "Optimizing Local Content Requirements Under Technology Gaps," Service Science, INFORMS, vol. 21(1), pages 213-230, January.
    7. 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.
    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. Macatangay, Rafael Emmanuel “Manny”, 2016. "Optimal local content requirement policies for extractive industries," Resources Policy, Elsevier, vol. 50(C), pages 244-252.
    10. 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).
    11. 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.
    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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