Irina Semykina (p)

The research explores the economic impact of natural resource endowment and offers specific inputs to the debate on the local content requirement (LCR) policy, gaining urgency in modern economic and political environment. During the past decade over 100 new performance requirements have been imposed both in developed and developing countries. LCRs have long been studied for various industries, but there is currently a vibrant debate on their effectiveness in resource-rich low-income countries.
LCR policy calling for a foreign investor to source a part of its procurements from local suppliers in the domestic economy, thereby represents a kind of mechanism of transformation the mining industry costs in the incomes of other sectors of the host economy, strengthening the linkages within the supply chain.
The estimates of the LCR policy effectiveness are highly contradictory. While the number of researchers distinguishes the effectiveness of this kind of policy in promoting infant industries, gaining competencies and the growth of production, others note the risks of fostering market imbalances, increasing multinationals costs, reducing foreign direct investments and incentives for technological development of the companies supported within the bounds of LCR policy.
The research aims to assess the impact of LCR policy implementation on the economic growth dynamics, to verify whether it could cause qualitative changes in key social indicators of economic development. Using the case-study approach we examined the local content framework in a number of countries and assessed the effectiveness of local content policy comparing to stated targets.
The results support the proposition that under certain conditions the LCR policy may be a kind of tool generating the induced economy. To add value to the host economy, the percentage of local content required should fit the existing level of local capabilities. Otherwise, local content instruments can be a barrier to investments characterized by long-term, high-cost operations. The study shows a strong potential capacity of the host economy to maintain sustainable growth exploiting and properly balancing the levers of LCR policy. Summarizing pre-conditions for successful policy implementation it can be argued that LCRs must be introduced in a stable and sizable market which has potential for growth. The larger the market, the more chance that welfare gains can be reached.

Mark Thissen (p), Olga Ivanova, Trond Husby

See extended abstract.

Tristan Kohl (p), Steven Brakman, Harry Garretsen

The United Kingdom has opted to leave the European Union. The trade and welfare consequences of this decision are large; most studies predict a trade and welfare loss for both the UK and the EU. The UK parliament has indicated that it aims for new and ambitious trade agreements following Brexit, but has not been explicit what type of trade agreements it envisions (except that it should be broad) or with whom specifically. In this paper, we consider the UK’s options. We first confirm, in line with existing studies, that the negative trade consequences of Brexit are substantial, especially for the UK and also for the EU. After reviewing all potential options, we have a simple answer to the question whether the UK has an alternative for the existing trade agreement with the EU. The answer is: No. Only a trade agreement with the EU can compensate for the negative trade consequences of Brexit.

Bart Los (p), Philip McCann, Mark Thissen

The outcome of the Brexit referendum will have consequences on both sides of the Channel. In this paper, we will quantify the extent to which the regional domestic product and labor income depend on trade with the UK. The novelty of this paper will be that we also take indirect effects into account. Although services are exported much less intensively than manufacturing products, a lot of business and financial services activity is related to demand for these by exporting manufacturers and should therefore be taken into account. In view of the increasing importance of interregionally and internationally fragmented value chains (Baldwin's "second unbundling"), such an approach is called for.

We can quantify the degree to which regions are dependent on trade with the UK by employing a new input-output dataset. This dataset combines information from the World Input-Output Database (WIOD), with regional economic accounts data, survey-based data on regional production structures and biregional trade data derived from transportation data. The data are available for the period 2000-2010. These global input-output tables (with 14 industries per NUTS2 region) allow for studies into the roles of regions in value chains, including those in which the UK features prominently.

For those EU regions that appear to be most dependent on direct and indirect exports, we also provide "industry profiles". These show which industries in these regions are most likely those that will be hit hardest by new trade barriers implied by the referendum outcome.