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

Shiue-Hung Lin and Yungho Weng

Journal of Applied Economics, 2020, vol. 23, issue 1, 316-328

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.

Date: 2020
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DOI: 10.1080/15140326.2020.1753468

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