475V. Kondrat’ev (v.b.kondr@imemo.ru),
Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO), 23, Profsoyuznaya Str., Moscow, 117997, Russian Federation
Abstract. A local content requirement (LCRs) is a widely acknowledge protective device with two simple but powerful objectives: create jobs at home rather than abroad and channel business to home firms rather that foreign firms. Historically, local content requirements have been associated primarily with government procurements and mandates imposed on publicly funded projects. Political leaders who advocate local content policy often distinguish multiple objectives. Many of recent local content requirements identified in this article were inspired by three basic related factors. First, since the onset of the Great Recession foremost they wanted to create jobs and channel business to domestic companies. Second, they may have aspirations of building a world class industry, following the logic of infant industry analysis. Third, they believe that local content policy offers a promising path to long-term economic development. Classic local content requirements give bid preferences to local supplies (e.g., 25 percent on a construction project or a narrowly defined category of goods such as military uniform) at least have the benefit of transparency. The cost of such local content requirements can be easily calculated, their administration is relatively simple? And they are not prone to corruption. Much more common are quantitative restrictions and guidelines. They are highly objectionable both on economic and political grounds. From economic standpoint their cost is highly variable depending both on underlying supply and demand conditions and on administrative factor. The same characteristics make local content requirements highly attractive to their supporters. The costs are off-budget and can be dismissed in political debate. The benefits in terms of new jobs and new industries are easily achieved and whether large or small they are immediate. The payoffs come fast as foreign supplies are excluded from the market.
Keywords: local content requirements, government procurement, economic growth, building new industries, new jobs creation, domestic business activity
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