On the Role of Local Content Requirement in Defusing the Threat of Quid-Pro-Quo FDI

Jung Hur & Yohanes E. Riyanto
Authors registered in the RePEc Author Service: Yohanes Eko Riyanto () and Jung Hur ()

No 641, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: We analyze local content requirement (LCR) and tariff in a two-country model of vertical market-structure with endogenous foreign direct investment (FDI). The foreign firm chooses whether to export or to undertake FDI. The host country anticipates the potential for FDI and selects tariff with or without LCR rate accordingly. Without LCR, the FDI imposes a threat on the host country and the threat exerts a tariff-liberalizing pressure. This FDI is often coined as quid-pro-quo FDI in the literature. In contrast, we show that with LCR the host government can defuse the threat of quid-pro-quo FDI

Keywords: tariff; local content requirement; export; quid-pro-quo foreign direct investment (search for similar items in EconPapers)
JEL-codes: F13 F14 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2004-08-11
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