Can strengthening the local content requirements meet a government’s need to raise industrial productivity and production?

Abstract

By taking firm heterogeneity in productivity into account in a monopolistic competition market in a general-equilibrium model setting, this paper investigates whether a stricter local content requirements (LCRs) can increase both productivity and production in the domestic intermediate-goods industry. The result shows that stricter LCRs policy cannot simultaneously increase both. The initial level of LCRs plays an important role in policy effectiveness. If it is below a critical level, a stricter LCRs can increase production but decrease productivity; however, production decreases but productivity increases if the initial LCRs are higher than the critical level.

The Membership in the World Trade Organization and Trade Policy Space in Developing Countries

“…The effectiveness of local content requirements in promoting domestic intermediate goods industries has been discussed in the literature. For example, recently, Lin and Weng (2020) have examined theoretically the effect of LCRs on productivity and production in the domestic intermediate-goods industry. They have observed that the effectiveness of this policy depends on the initial level of the local content requirement, given that the LCR cannot increase both production and productivity in the industry.…”

Pinjaman Mengikat Dan Benturan Kebijakan Tingkat Komponen Dalam Negeri Pada Pengadaan Pemerintah Indonesia

“…Namun niat mewujudkan multiplier effect belum tentu selalu mulus, terutama jika pemerintah tidak memiliki dana untuk pembiayaan proyek sehingga harus berhutang. Sementara di satu sisi terdapat kebijakan dari donor yang mengesampingkan atau membatasi pemanfaatan produk dalam negeri (Lin & Weng, 2020).…”