Trade in Critical Raw Materials and the direction of innovation

Fabrizio Fusillo (), Gianluca Orsatti (), Guido Pialli (), Francesco Quatraro () and Alessandra Scandura ()
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Fabrizio Fusillo: Department of Economics and Statistics Cognetti de Martiis, University of Turin, Italy, https://www.est.unito.it
Gianluca Orsatti: Department of Economics and Statistics Cognetti de Martiis, University of Turin, Italy, https://www.est.unito.it
Guido Pialli: Department of Economics and Statistics Cognetti de Martiis, University of Turin, Italy, https://www.est.unito.it
Francesco Quatraro: Department of Economics and Statistics Cognetti de Martiis, University of Turin, Italy, https://www.est.unito.it
Alessandra Scandura: Department of Economics and Statistics Cognetti de Martiis, University of Turin, Italy, https://www.est.unito.it

Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio Carlo Alberto. WP series from University of Turin

Abstract: Critical Raw Materials (CRMs) are at the root of many frontier technologies. This paper investigates the effects of the import penetration of CRMs on the direction of innovation across US Core-Based Statistical Areas for the period 2001-2018. To examine this relationship, we built a new dataset that combines two key sources of information. First, we use text mining to classify patents that mention a CRM in their summary text and aggregate CRM-related patents to cities. Second, we identify CRMs in product import descriptions and construct a measure of CRM import penetration at the city level, weighted by the local employment distribution across industries. We find that areas more exposed to CRM trade produce more CRM-related patents. To get closer to a causal identification, we adopt a shift-share instrumental variable design based on CRM imports towards other high-income countries. Theoretically, our results are consistent with directed technological change, where innovation is directed towards locally more abundant intermediate inputs.

Pages: 37 pages
Date: 2026-06
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