Local content and emission taxes when the number of foreign firms is endogenous.

Abstract

There is a wide range of countries which have employed local content requirements to promote jobs and meet national green energy objectives. At the same time market-based policies (e.g., emission taxes) have been implemented to address environmental degradation. This paper considers a Cournot model in the presence of emission taxes and local content requirements where the number of foreign, more efficient firms, is endogenous. The analysis explores conditions under which an emission tax and/or local content may lower emissions and encourage foreign direct investment. The analysis of policy reform is also explored.