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Local Content Requirements and the Boundary of Knowledge Spillovers

Author

Listed:
  • H. Delgado
  • M. Del Gatto
  • N. Matsushima
  • A. Naghavi

Abstract

This paper investigates the reorganization of Global Value Chains (GVCs) following the removal of Local Content Requirement (LCR) policies, using the termination of Brazil's Inovar-Auto program(2013-2017) as a natural experiment. Utilizing granular, shipment-level data from the Panjiva database, we track shifts between intra-firm and arm's-length trade across geographic regions andinput types. Contrary to the conventional view that protectionism is necessary to foster inward technology transfer, we find that policy liberalization significantly increased the local outsourcingof non-routine activities. This effect is most pronounced in host environments with strong institutional quality, where legal safeguards enable firms to externalize activities rich in tacitknowledge. While routine tasks were increasingly imported intra-firm from global headquarters, the rescinding of LCR mandates dismantled the protective bubble that previously forcedautomakers to internalize complex work within local subsidiaries for compliance. By shifting these non-routine, less-codified tasks to Independent local suppliers, the removal of LCRs effectivelyexpanded the qualitative boundary for potential knowledge spillovers into the local ecosystem.

Suggested Citation

  • H. Delgado & M. Del Gatto & N. Matsushima & A. Naghavi, 2023. "Local Content Requirements and the Boundary of Knowledge Spillovers," Working Paper CRENoS 202316, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:202316
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    File URL: https://crenos.unica.it/bibcite/reference/8784
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    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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