Year: 1999
Title:
Export, foreign direct investment and local content requirement
JEL: F23, F12
Authors:
L. D. Qiu, Hong Kong University of Science and Technology
Z. Tao, University of Hong Kong
Abstract:
Local content requirement (LCR) is a popular government regulation on foreign direct investment (FDI). This paper investigates the design of optimal LCR policy. LCR affects multinationals' international strategies, namely FDI and export. We find that a less efficient or more vertically integrated firm is more likely to adopt the FDI strategy over the export strategy. By taking the endogeneity of a firm's international strategy into account, we characterize conditions under which the host government's optimal LCR policy results in one of the following equilibria: (i) all firms make FDI, (ii) all firms choose export, and (iii) some make FDI and others choose export.
Keywords:
Export, FDI, local content requirement, tariff, multinationals
Contact address: larryqiu at ust.hk
Paper URL: http://No direct link available
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