A major goal for many low- and middle-income countries is diversification of economic production away from dependence on natural resources and towards industrialisation. A local content requirement (LCR) is a type of industrial policy intended to foster domestic economic activity by requiring multinational firms to source a percentage of their inputs from local suppliers. This project analyses the firm-level impacts of a local content requirement imposed on oil companies in Brazil during the 2000s and 2010s. This policy may have stimulated growth in domestic input-supplying firms, but may also have protected inefficient firms.
This project makes use of three existing administrative datasets on Brazilian firms and employees, including information on companies’ size, location, and sector; profits, exports, and investments; and employee wages and education. By merging the three datasets, the research team can identify each firm that participated in the local content programme and construct a rich panel of outcomes for these firms, as well as their neighbours and matched counterfactuals, over an eighteen-year period that spans from three years prior to initial strengthening of the LCR policy in 2003, to two years after relaxation of the policy in 2016. Outcomes of interest include entry and exit, employment, wages, education levels, hires and layoffs, output, profits, labour productivity, TFP, export-orientation, and R&D intensity. The team also evaluates the spillover effects of the policy onto neighbouring businesses.
Determining the effects of industrial policy is a prominent goal for nations currently reliant on natural resource production as the primary driver of the economy. These countries include most African nations. To encourage industrialisation, Angola, Cote d'Ivoire, Ghana, Nigeria, Tanzania, and Zambia have already implemented LCR policies. It is essential to study whether these policies are impactful to structural transformation and growth as they become more widely spread. Evidence that Brazil’s LCR policy successfully encouraged domestic firm growth and development could point policymakers toward implementation or improvement of these policies in natural resource sectors. On the other hand, evidence of the ineffectiveness of Brazil’s LCR could prompt policymakers to move away from LCRs toward more productive uses of state funding for economic growth.