Export‐share requirements, content protection and the multinational firm under production uncertainty

Abstract

Analyses the influence of export share and domestic content policies on the level of capital investment undertaken by a multinational firm both in its home country and in the foreign country in which it operates. These protective policies, in force in both developing and industrialized countries, require the firm to employ a certain proportion of inputs from the foreign country in which it operates and to export a certain proportion of its output abroad. Cases examined in the analysis include those for which the firm faces uncertainty in the production process in the host and home countries; and in neither country. Finds that both of these policies can have spillover effects to the home country as well, i.e. when there is uncertainty in production in the home country, these policies can reduce the optimal level of investment in the home country, too.