The Hidden Cost of Resource Nationalism

This paper explores the effect of export restrictions on critical minerals on foreign investment in exploration, the upstream activity that determines the future resource base. Using a three-way panel of countries, minerals and years that combines the OECD inventory of export restrictions on critical raw materials with S&P Global exploration budgets over the period 2009 to 2024, and a local-projections difference-in-differences estimator that accommodates the staggered adoption of restrictions, we find that the introduction of an export restriction has a statistically and economically significant negative effect on foreign exploration investment: about US$11 million (constant dollars) per country-mineral pair per year, or roughly 9% of the cost of exploring and developing a typical gold project. The effect is asymmetric, as removing a restriction does not restore investment. Outright export bans drive the result, whereas export taxes and quotas have no discernible effect on foreign exploration. The key results are driven by countries with weaker control of corruption, suggesting that the signalling effect of trade restrictions is pervasive when there is poor policy credibility. Finally, we verify that restrictions bind in practice: export values fall by about 15% after a restriction is introduced, with the largest declines for bans and quotas.