A Political Economy of China's Export Restrictions on Rare Earth Elements

29 Pages Posted: 17 Jun 2015

See all articles by Frank Pothen

Frank Pothen

Fraunhofer Gesellschaft - Fraunhofer Center for International Management and Knowledge Economy IMW

Kilian Fink

Goethe University Frankfurt

Date Written: April 20, 2015

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.

Keywords: Rare Earths, Export Restrictions, Political Economy

JEL Classification: Q37, Q38, D78, P26

Suggested Citation

Pothen, Frank and Fink, Kilian, A Political Economy of China's Export Restrictions on Rare Earth Elements (April 20, 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-025, Available at SSRN: https://ssrn.com/abstract=2619123 or http://dx.doi.org/10.2139/ssrn.2619123

Frank Pothen (Contact Author)

Fraunhofer Gesellschaft - Fraunhofer Center for International Management and Knowledge Economy IMW ( email )

Neumarkt 9-19
Leipzig, Saxony 04109
Germany

Kilian Fink

Goethe University Frankfurt

GrĂ¼neburgplatz 1
Frankfurt am Main, 60323
Germany

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