The Functional Role of Critical Raw Materials in Technological Innovation

This paper presents new evidence on how countries are innovating in response to the growing strategic importance of critical raw materials (CRMs). Using millions of patent abstracts from the PATSTAT database, we apply a large language model (LLM) to classify CRM-related inventions into four functional roles: use, refine, recycle, and remove. A fifth category, wrong, flags false positives and improves classification accuracy. This approach moves beyond simple patent counts by identifying the specific roles CRMs play in technological development, enabling a more nuanced view of innovation strategies. Our classification reveals a significant increase in CRM-related innovation over the past two decades, with notable variation across materials, functions, and countries. While use-related patents remain dominant, recent growth in recycle and remove functions points to a shifting emphasis on circularity. Geographically, China leads across all functions, while an upward trend in recycling activity is observed across several advanced economies. A panel data analysis reveals that innovation in refining, recycling, and removing CRMs is positively associated with innovation in their use, suggesting functional complementarities that can enable both technological progress and more sustainable material strategies. These findings have important implications for policy, highlighting the value of supporting functionally diverse CRM innovation, fostering international coordination, and adopting tools for real-time innovation monitoring. By combining text mining with AI-driven functional classification of patented inventions, this study offers a scalable method for tracking material-related innovation and informing policies aimed at sustainability and technological resilience.