Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy

Maximilian Mueller (), Denis Schweizer () and Volker Seiler
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Maximilian Mueller: WHUÐOtto Beisheim School of Management
Denis Schweizer: Concordia University

No 92, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of high-tech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to ChinaÕs REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

Keywords: Announcement Effects; Event Study; Rare Earths Elements; WTO (search for similar items in EconPapers)
JEL-codes: F13 F52 G14 Q31 Q34 Q37 Q38 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2015-02
New Economics Papers: this item is included in nep-cna, nep-ene and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Wealth Effects of Rare Earth Prices and China’s Rare Earth Elements Policy (2016)
Working Paper: Wealth Effects of Rare Earth Prices and China’s Rare Earth Elements Policy (2016)
Working Paper: Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy (2015)
Working Paper: Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy (2014)
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