Economics
Local content requirements, regional production networks, and spatial distribution of firms in China
6 Jun 2023 | 3:00 p.m. - 4:15 p.m.
KK1119, K. K. Leung Building, HKU
Speaker:
Mr. Xiangyu Shi
Ph.D. Student in Economics
Yale University
Abstract:
Local content requirement (LCR) protects local interests and disrupts buyer-supplier chains, since it requests local firms to buy the outputs of other local firms as inputs. Hence, it affects firms’ location choices, as buyer-supplier chains affect cost-effectiveness. I find that LCR shapes the spatial distribution of firm entry and exit through this mechanism. Favoritism by local career-driven leaders under economic decentralization is the driver of the effects. A novel spatial quantitative model indicates that eradicating LCR enhances welfare, by reducing mismatch between buyers and suppliers and mismatch between firms and locations.
