IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v92y2024icp114-122.html
   My bibliography  Save this article

Optimal local content requirement under export share requirement consideration

Author

Listed:
  • Hung, Chih-Ming
  • Weng, Yungho

Abstract

This paper considers a Cournot model with a local content requirement and export share requirement. The analysis investigates the conditions under which the local content requirement may promote an intermediate industry and explores the optimal local content requirement and the key factors that affect it. The results show that while a small local content requirement has a promotion effect when it is first introduced, while if the local content requirement is further increased, the effect will depend on the intermediate industry's production efficiency. Furthermore, the optimal local content requirement should be higher as the domestic market expands or the export price increases. Finally, the export share requirement can be treated as a policy instrument that is supplementary to the local content requirement.

Suggested Citation

  • Hung, Chih-Ming & Weng, Yungho, 2024. "Optimal local content requirement under export share requirement consideration," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 114-122.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:114-122
    DOI: 10.1016/j.iref.2024.02.027
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056024001011
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2024.02.027?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michael L. Mussa, 1984. "The Economics of Content Protection," NBER Working Papers 1457, National Bureau of Economic Research, Inc.
    2. Eden S.H. Yu & Chi‐Chur Chao, 1998. "On Investment Measures and Trade," The World Economy, Wiley Blackwell, vol. 21(4), pages 549-561, June.
    3. 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.
    4. Lewis, Joanna I. & Wiser, Ryan H., 2007. "Fostering a renewable energy technology industry: An international comparison of wind industry policy support mechanisms," Energy Policy, Elsevier, vol. 35(3), pages 1844-1857, March.
    5. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    6. 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.
    7. Silvana Tordo & Michael Warner & Osmel E. Manzano & Yahya Anouti, 2013. "Local Content in the Oil and Gas Sector," World Bank Publications - Books, The World Bank Group, number 15930.
    8. Lahiri, S. & Ono, Y., 1998. "Export-Oriented Foreign Direct Investment and Local Content Requirement," ISER Discussion Paper 0456, Institute of Social and Economic Research, Osaka University.
    9. Luis Gautier, 2017. "Local content and emission taxes when the number of foreign firms is endogenous," Journal of Economics, Springer, vol. 122(3), pages 239-266, November.
    10. 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.
    11. 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.
    12. 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.
    13. David Greenaway, 1992. "Trade Related Investment Measures and Development Strategy," Kyklos, Wiley Blackwell, vol. 45(2), pages 139-159, May.
    14. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    15. Carl Davidson & Steven J. Matusz & Mordechai E. Kreinin, 1985. "Analysis of Performance Standards for Direct Foreign Investments," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 876-890, November.
    16. Takacs, Wendy E, 1994. "Domestic Content and Compensatory Export Requirements: Protection of the Motor Vehicle Industry in the Philippines," The World Bank Economic Review, World Bank, vol. 8(1), pages 127-149, January.
    17. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(1), pages 107-125.
    18. Gene M. Grossman, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(4), pages 583-603.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Kwon, Chul-Woo & Chun, Bong Geul, 2015. "The effect of strategic technology adoptions by local firms on technology spillover," Economic Modelling, Elsevier, vol. 51(C), pages 13-20.
    3. Jinji, Naoto & Mizoguchi, Yoshihiro, 2016. "Rules of origin and technology spillovers from foreign direct investment under international duopoly," Japan and the World Economy, Elsevier, vol. 40(C), pages 47-60.
    4. 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.
    5. Macatangay, Rafael Emmanuel “Manny”, 2016. "Optimal local content requirement policies for extractive industries," Resources Policy, Elsevier, vol. 50(C), pages 244-252.
    6. Ivar Kolstad & Abel Kinyondo, 2015. "Alternatives to local content," WIDER Working Paper Series 106, World Institute for Development Economic Research (UNU-WIDER).
    7. Shiliang Cui & Lauren Xiaoyuan Lu, 2019. "Optimizing Local Content Requirements Under Technology Gaps," Service Science, INFORMS, vol. 21(1), pages 213-230, January.
    8. Ivar Kolstad & Abel Kinyondo, 2015. "Alternatives to local content," WIDER Working Paper Series wp-2015-106, World Institute for Development Economic Research (UNU-WIDER).
    9. Jung Hur & Yohanes E. Riyanto, 2004. "On the Role of Local Content Requirement in Defusing the Threat of Quid-Pro-Quo FDI," Econometric Society 2004 Far Eastern Meetings 641, Econometric Society.
    10. repec:ebl:ecbull:v:6:y:2004:i:24:p:1-9 is not listed on IDEAS
    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. Sahoo, Anshuman & Shrimali, Gireesh, 2013. "The effectiveness of domestic content criteria in India's Solar Mission," Energy Policy, Elsevier, vol. 62(C), pages 1470-1480.
    13. Beghin, John C. & Blake Brown, A. & Hasyim Zaini, M., 1997. "Impact of domestic content requirement on the US tobacco and cigarette industries," Agricultural Economics, Blackwell, vol. 15(3), pages 201-212, January.
    14. Rod Falvey & Geoff Reed, 1998. "Economic effects of rules of origin," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 209-229, June.
    15. 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.
    16. 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.
    17. Keun Lee & Di Qu & Zhuqing Mao, 2021. "Global Value Chains, Industrial Policy, and Industrial Upgrading: Automotive Sectors in Malaysia, Thailand, and China in Comparison with Korea," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 33(2), pages 275-303, April.
    18. Bekkali, Mukhtar & Beghin, John C., 2005. "Economics of Domestic Cultural Content Protection in Broadcasting, The," Staff General Research Papers Archive 12476, Iowa State University, Department of Economics.
    19. Luis Gautier, 2017. "Local content and emission taxes when the number of foreign firms is endogenous," Journal of Economics, Springer, vol. 122(3), pages 239-266, November.
    20. 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.
    21. 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).

    More about this item

    Keywords

    Export share requirement; Foreign direct investment; Local content requirement;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:114-122. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.