ABSTRACT
Our study examines the effects of Indonesia’s local content requirements (LCR) policy on the country’s imports and exports. To achieve this, we compile a comprehensive dataset of all LCRs applied to products in Indonesia between 2004 and 2020. We use difference-in-differences (DID) estimations within an event-study framework to analyze how LCRs influence trade outcomes at the product level. Our findings suggest that, in general, LCRs are weakly associated with an increase in imports and a decline in exports within 5 years of their implementation, especially when we only consider manufacturing products in the analysis. The results provide suggestive evidence of a potential competitiveness loss arising from LCRs and a domestic reallocation of resources toward meeting LCRs. This chapter provides valuable insights into the trade-offs associated with implementing the LCR policy.
