Abstract
• In our model the host government (HG) and international oil company (IOC) negotiate on how to share the resource profit. • In addition, HG requires from IOC spillover contribution to domestic economy by promoting local contents (LC). • We claim that the government-led LC policy does not generate spillover benefit to everyone in the host country. • Our paper theoretically shows that LC policy is good for domestic suppliers in petroleum value chain and bad for the HG. • We theoretically show that the net negative spillover effects are possible due to low absorptive capacity and side payment. • To benefit from natural resource FDI spillover when world oil price increases, the HG should grant a greater share to IOC.
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