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Title: Export, foreign direct investment and local content requirement
Authors: Qiu, Larry Dongxiao
Tao, Zhigang
Keywords: Export
Local content requirement
Issue Date: Jun-1999
Series/Report no.: Working Papers ; 9910
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.
Appears in Collections:CED Working Papers

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