ABSTRACT
Like many other developing countries, Indonesia aspires to upgrading its industrial competitiveness and increasing the value added of its manufacturing sector. This chapter investigates the impacts of local content requirement (LCR) on Indonesia's manufacturing sector. It specifically focuses on the impact of LCR on sectors like the electronics, and the machinery and transport industries. These industries are part of the global supply chain, in which technology spillovers and regional networks are important. According to data from Statistics Indonesia (BPS), the three classified goods are among Indonesia's top 10 exports. Together they account for around 13 percent of the country's total exports. While they contribute to export revenue, these industries have always been targeted by LCR policy. The chapter examines the impact of LCR through the use of imported inputs on firms' productivity, value added, output, exports, and employment. It concludes and draws some policy recommendations for designing future trade, industrial, and investment policies.
