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Content Protection with Foreign Capital


  • Richardson, Martin


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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    References listed on IDEAS

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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,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. 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.
    4. Rachel McCulloch, 1990. "Investment Policies in the GATT," The World Economy, Wiley Blackwell, vol. 13(4), pages 541-554, December.
    5. Chi-Chur Chao & Eden S. H. Yu, 2014. "Export-Share Requirements, Trade Balances, and Welfare: A Two-Period Analysis," World Scientific Book Chapters,in: TRADE-RELATED INVESTMENT MEASURES Theory and Applications, chapter 5, pages 77-89 World Scientific Publishing Co. Pte. Ltd..
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.

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