TY - JOUR AU - Lopez-de-Silane,Florencio AU - Markusen,James R. AU - Rutherford,Thomas F. TI - Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks JF - National Bureau of Economic Research Working Paper Series VL - No. 4512 PY - 1993 Y2 - October 1993 UR - http://www.nber.org/papers/w4512 L1 - http://www.nber.org/papers/w4512.pdf N1 - Author contact info: Florencio Lopez-de-Silanes EDHEC Business School 393, Promenade des Anglais BP 3116 06202 Nice Cedex 3 FRANCE Tel: +33 (0) 4 93 18 78 07 Fax: +33 (0) 4 93 18 78 41 E-Mail: Florencio.lopezdesilanes@edhec.edu James R. Markusen Department of Economics University of Colorado Boulder, CO 80309-0256 Tel: 303/492-0748 Fax: 303/492-8960 E-Mail: james.markusen@colorado.edu Thomas F. Rutherford ETH Zurich Zurichbergstrasse 18 8032 Zurich Switzerland E-Mail: trutherford@ethz.ch AB - Regional trade agreements must specify domestic-content rules (rules of origin) that define the conditions under which a good qualifies as 'domestic' and so may be freely traded within the block. The paper analyzes such rules, focussing in particular on oligopolistic industries in which foreign multinationals producing within the block rely much more on imported intermediate inputs than do domestic firms. In such a situation, we argue that domestic content provisions are anti-competitive, reducing overall final output of the industry, and shift rents (in the absence of free entry) to domestic firms. It is possible that the anti-competitive aspect of the rules are sufficiently strong that total industry profits rise and the equilibrium demand for the substitute domestic inputs falls (the scale effect of reduced output outweighs a substitution effect in favor of domestic intermediates). The latter effect is more likely to the extent that the foreign multinationals can switch from producing within the block to exporting to the block. These ideas are then examined numerically using an applied general-equilibrium model of the North American auto industry. ER -