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GTAP Resource #6491

"Local Content Requirements: Economic Impacts on South Africa"
by Barbe, Andre

Governments often aim to promote economic growth by encouraging domestic sourcing. This can be achieved through public media campaigns to “Buy American” or active policies like tariffs. However, because of the negative repercussions that tariffs can create, governments are increasingly turning to a variety of policies collectively known as local content requirements (LCRs). For example, they may require producers to make their output goods using input goods made domestically, or mandate domestic sourcing. Although LCRs may seem like a costless way to promote domestic industry, local content requirements have similar negative impacts as overtly protectionist measures like tariffs do.

For example, South Africa has proposed an ambitious economic plan to recover from the COVID-19 pandemic. Among other goals, the plan aims to reduce non-petroleum imports by 20%. We analyze the impact of achieving the import reduction via several different policy methods. Macroeconomic simulations with the ENVISAGE model show that reducing imports would reduce South Africa’s 2025 GDP by 1.2 to 1.3 percent, depending on the policy tool used, with LCRs dropping it by 1.3 percent. Moreover, LCRs target only intermediate goods as opposed to intermediate and final goods as tariffs do. This means they must reduce intermediate imports even more than tariffs do, to reach any given level of import reduction. As a result, LCRs have even worse impacts on national income than tariffs do, reducing it by 0.7 percent.

Resource Details (Export Citation) GTAP Keywords
Category: 2022 Conference Paper
Status: Not published
By/In: Presented during the 25th Annual Conference on Global Economic Analysis (Virtual Conference)
Date: 2022
Created: Barbe, A. (4/1/2022)
Updated: Barbe, A. (6/3/2022)
Visits: 120
- Domestic policy analysis
- Non-Tariff barriers
- Public procurement
- Supply chains
- Africa (Southern)

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