Multinational Corporations and Local Content Policy: Towards a New Equilibrium

Abstract

Multinational corporations operate beyond state borders and the need to regulate them has been made apparent by documented human rights violations, as well as environmental encroachments. This article considers two types of measures: (1) those that have been adopted by multinational corporations themselves such as Corporate Social Responsibility initiatives and (2) those developed by host states with a focus on Local Content policy measures. Going beyond the idea of regulating corporations, Local Content policy measures are designed to act as a growth multiplier by developing linkages and involving local populations in the production process to create a spillover effect on the local or national economy. The author reviews the advantages and risks, associated with crafting such policies, and argues that demand for such measures is on the rise, not just in high value-added industries but also in other spheres. Indeed, while Local Content policies may present some disadvantages, restricting foreign contributions to the production process in an attempt to cultivate local economic linkages, their explicit formulation offers a high degree of clarity to international investors, which could facilitate and regularize the activities of multinational corporations.

Keywords

• multinational corporations
• local content policy
• economic linkages
• international trade
• world trade organization
• oil and gas industry