Optimal local content requirement under export share requirement consideration

Abstract

This paper considers a Cournot model with a local content requirement and export share requirement. The analysis investigates the conditions under which the local content requirement may promote an intermediate industry and explores the optimal local content requirement and the key factors that affect it. The results show that while a small local content requirement has a promotion effect when it is first introduced, while if the local content requirement is further increased, the effect will depend on the intermediate industry's production efficiency. Furthermore, the optimal local content requirement should be higher as the domestic market expands or the export price increases. Finally, the export share requirement can be treated as a policy instrument that is supplementary to the local content requirement.