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    The Impact of Local Content Requirements on the Indonesian Manufacturing Industry

    Negara, Siwage Dharma | October 2016
    Abstract
    Local content requirements (LCRs) are prohibited under the WTO law as they violate several WTO provisions including the national treatment principle. Nonetheless, many countries, including Indonesia, persistently use LCRs as part of their industrial policies. Countries implement LCRs for various reasons, including to protect local industries; to create employment; to boost export; to enhance local innovation capacity; and to support broader economic development in the country. This paper examines the impact of LCRs in manufacturing sector in Indonesia, with a particular interest on the machinery and transport industries. Since LCRs discourage foreign imports, hence it is expected they may affect firm’s use of imported inputs. The paper uses the Indonesian manufacturing census data, covering the period of 1990 to 2013. It finds the persistence impact of imported inputs on firms’ level of productivity, value added, output, export, and employment on the manufacturing sector in Indonesia. Our main finding indicates the ineffectiveness of LCRs in terms of reducing firm’s dependency on imported inputs. Given this finding, any unreasonably too restrictive LCRs may adversely affect industrial performance and thus its competitiveness.
    Citation
    Negara, Siwage Dharma. 2016. The Impact of Local Content Requirements on the Indonesian Manufacturing Industry. © ISEAS Yusof Ishak Institute. http://hdl.handle.net/11540/6716.
    Keywords
    Economic planning
    Economic structure
    Growth policy
    Trade relations
    Trade policy
    Economic development
    Trade Facilitation
    Trade
    Economic integration
    Regional Economic Integration
    Free Trade
    Trade Agreements
    Trade Policy
    Economic Development
    Economics
    International Economics
    Intraregional Trade
    Regional economics
    Economic forecasting
    Economic development projects
    Success in business
    Business
    Free trade
    Business
    Economics
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    Citable URI
    http://hdl.handle.net/11540/6716
    Metadata
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    Author
    Negara, Siwage Dharma
    Theme
    Trade
    Economics
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise