Local Content Requirements and the Boundary of Knowledge Spillovers

H. Delgado, M. Del Gatto, Noriaki Matsushima and A. Naghavi

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

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.

Keywords: Local content requirements; outsourcing; knowledge spillovers; Firm organization (search for similar items in EconPapers)
JEL-codes: D23 F13 F23 L22 O24 O34 O54 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://crenos.unica.it/bibcite/reference/8784
https://crenos.unica.it/sites/default/files/2026-11/WP26-16.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:202316

Access Statistics for this paper

More papers in Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia Contact information at EDIRC.
Bibliographic data for series maintained by CRENoS ().