Rare earths , export restrictions , political economy
Abstract:
We investigate why governments restrict exports of exotic raw materials taking
rare earth elements as a case study. Trade restrictions on exotic materials do not
have immediate macroeconomic effects. Relocating rare earth intensive industries is
found to be the main reason behind China's export barriers. They are part of a more
extensive strategy aiming at creating comparative advantages in these sectors and at
overcoming path dependencies. Moreover, export barriers serve as a second-best instrument
to reduce pollution and to slow down the depletion of exhaustible resources.
Growing domestic rare earth consumption renders those increasingly ineffective. Rising
reliance on mine-site regulation indicates that this fact is taken into account. Rare
earth extraction is dominated by a few large companies; the demand side is dispersed.
That speaks against successful lobbying for export restrictions. It appears as if the
export barriers are set up to compensate mining firms.
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