From mines to markets: Gravity model insights on critical raw material trade

Stender, Frederik; Vogel, Tim Working Paper From mines to markets: Gravity model insights on critical raw material trade IDOS Discussion Paper, No. 17/2025 Provided in Cooperation with: German Institute of Development and Sustainability (IDOS), Bonn Suggested Citation: Stender, Frederik; Vogel, Tim (2025) : From mines to markets: Gravity model insights on critical raw material trade, IDOS Discussion Paper, No. 17/2025, ISBN 978-3-96021-262-1, German Institute of Development and Sustainability (IDOS), Bonn, https://doi.org/10.23661/idp17.2025 This Version is available at: https://hdl.handle.net/10419/320560 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ From Mines to Markets Gravity Model Insights on Critical Raw Material Trade Frederik Stender Tim Vogel IDOS DISCUSSION PAPER 17/2025 From mines to markets Gravity model insights on critical raw material trade Frederik Stender Tim Vogel Bonn 2025 Dr Frederik Stender is a Senior Researcher in the department “Transformation of Economic and Social Systems” at the German Institute of Development and Sustainability (IDOS) in Bonn. Email: [email protected] Dr Tim Vogel is a Researcher in the department “Transformation of Economic and Social Systems” at the German Institute of Development and Sustainability (IDOS) in Bonn. Email: [email protected] The German Institute of Development and Sustainability (IDOS) is institutionally financed by the Federal Ministry for Economic Cooperation and Development (BMZ), based on a resolution of the German Bundestag, and the state of North Rhine-Westphalia (NRW) as a member of the Johannes-Rau-Forschungsgemeinschaft (JRF). Suggested citation: Stender, F., & Vogel, T. (2025). From mines to markets: Gravity model insights on critical raw material trade (IDOS Discussion Paper 17/2025). German Institute of Development and Sustainability (IDOS). https://doi.org/10.23661/idp17.2025 Disclaimer: The analyses expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the German Institute of Development and Sustainability (IDOS). Except otherwise noted, this publication is licensed under Creative Commons Attribution (CC BY 4.0). You are free to copy, communicate and adapt this work, as long as you attribute the German Institute of Development and Sustainability (IDOS) gGmbH and the author(s). IDOS Discussion Paper / German Institute of Development and Sustainability (IDOS) gGmbH ISSN 2751-4439 (Print) ISSN 2751-4447 (Online) ISBN 978-3-96021-262-1 (Print) DOI: https://doi.org/10.23661/idp17.2025 © German Institute of Development and Sustainability (IDOS) gGmbH Tulpenfeld 6, 53113 Bonn Email: [email protected] https://www.idos-research.de Printed on eco-friendly, certified paper. IDOS Discussion Paper 17/2025 III Abstract Access to critical raw materials (CRMs) is increasingly being shaped by geopolitical dynamics, fuelling a global competition for supply security. This paper applies the gravity model of trade to examine how OECD countries leverage Aid for Trade (AfT), Bilateral Investment Treaties (BITs), and Preferential Trade Agreements (PTAs) to influence CRM imports from developing countries. Using extensive bilateral panel data from 1995 to 2023, we find that PTAs are particularly effective, affecting both the intensive and extensive margins of trade. These findings highlight the strategic role of formal trade agreements and suggest that a coordinated policy mix of trade diplomacy, investment, and aid is essential for resilient and diversified CRM supplies. Keywords: Aid for Trade; Bilateral Investment Treaties; critical raw materials; extensive margin; intensive margin; gravity model; Preferential Trade Agreements JEL Classification: F13; F14; F15; F21; F35; F53 IDOS Discussion Paper 17/2025 IV Acknowledgements We are grateful to Clara Brandi, Lukas Kornher, and Tim Röthel for their insightful comments and suggestions on an earlier draft of this paper. We also thank Rodrigo Polanco for generously providing customised data from the Electronic Database of Investment Treaties (EDIT). The views expressed in this paper are solely our own, and any remaining errors are our responsibility. IDOS Discussion Paper 17/2025 V Contents Abstract III Acknowledgements IV Abbreviations VI 1 Introduction 1 2 Empirical strategy and data 2 3 Results 4 4 Conclusions 8 References 9 Appendix 11 Tables Table 1: Baseline results 4 Table 2: Policy interaction results 6 Table 3: Results by supply chain stage 7 Appendix Tables Table A1: Exporting countries in the sample 11 Table A2: Importing countries in the sample 12 Table A3: List of base critical raw materials used for computation of dependent variable 13 Table A4: Summary statistics 13 IDOS Discussion Paper 17/2025 VI Abbreviations AfT Aid for Trade BACI Base pour l’Analyse du Commerce International BIT Bilateral Investment Treaty CRM critical raw material CTIP Clean Trade and Investment Partnership DAC OECD Development Assistance Committee EU European Union FDI Foreign Direct Investment HS Harmonised System LPM linear probability model MFN Most Favoured Nation MSP Minerals Security Partnership OECD Organisation for Economic Co-operation and Development PPML Poisson pseudo-maximum likelihood PTA Preferential Trade Agreement USD US dollar IDOS Discussion Paper 17/2025 1 1 Introduction Our modern world runs on critical raw materials (CRMs). Elements like lithium, cobalt and rare earth metals are key ingredients behind electric vehicles, semiconductors, and wind turbines, placing them at the heart of high-tech innovation and the green energy transition. As a result, CRMs have become a top priority on political and economic agendas worldwide (see, for instance, The Economist, 2023). While high-income countries and global powers such as Australia, Canada, and – most notably – China hold substantial reserves of CRMs, significant deposits also lie in lowand middleincome countries, many of which remain commercially untapped. However, access to these resources is often constrained not only by extraction challenges but also by geopolitical dependencies, fuelling a global race to secure supplies (see, for instance, UNCTAD [United Nations Conference on Trade and Development], 2024; WEF [World Economic Forum], 2024). This competition is reshaping international relations, prompting leading economies to respond strategically. The European Union (EU), for example, has incorporated CRM-related provisions into its trade deals, with the revised EU-Chile agreement serving as a notable example. However, the EU’s approach is expanding beyond traditional trade tools, increasingly integrating a wide array of foreign policy tools to secure reliable CRM access. Recently, it launched negotiations for Clean Trade and Investment Partnerships (CTIPs), aimed at formalising bilateral ties while prioritising financial support and investment for critical supply chains – complementing its broader Global Gateway initiative. Similarly, the United Kingdom and the United States have leaned toward investment-led strategies over conventional trade deals, both being founding members of the Minerals Security Partnership (MSP), which mobilises public and private capital to support CRM mining and processing projects in developing countries. This paper offers a macro-level, empirical perspective on this evolving landscape. To our knowledge, it is the first to apply the gravity model of trade to systematically assess how three trade-related policy instruments have shaped OECD (Organisation for Economic Co-operation and Development) countries’ CRM imports from developing countries. We focus on Aid for Trade (AfT), Bilateral Investment Treaties (BITs), and Preferential Trade Agreements (PTAs) as proxies for shifting policy complexities, selected for their relevance and availability of reliable, comprehensive data. Each of these instruments serves distinct, yet complementary, purposes: PTAs formalise trade ties and support broader policy cooperation; BITs help attract Foreign Direct Investment (FDI) and signal stable investment conditions; and AfT provides targeted financial support to strengthen infrastructure or productive capacity. Together, these instruments can form a strategic policy mix for building long-term supplier partnerships. Whether they do so, and to what extent, remains an empirical question. Our analysis explores their influence on both the intensive (deepening trade relationships) and the extensive (activating supplier links in underutilised markets) margins of trade. We build on two strands of recent gravity model literature. First, we engage with the nascent body of research on the determinants of trade in critical resources – both in aggregated contexts (e.g., Farag & Zaki, 2025; Zhong & Su, 2023) and in specific sectors such as fuels (e.g., Barnes & Bosworth, 2015; Farag & Zaki, 2023; Zhang et al., 2018), and rare earth metals (e.g., Shigetomi et al., 2017; Yaseen et al., 2025). While this literature highlights the importance of country-specific supply-side and demand-side factors, (bilateral) foreign policy tools remain underexplored. Second, from a methodological perspective, we draw on studies analysing AfT, BITs, and PTAs in broader or more siloed frameworks (e.g., Calì & te Velde, 2011; Heid & Vozzo, 2020; Mattoo et al. 2022; Stender & Vogel, 2025; Xiong, 2022). By bridging these perspectives, our paper IDOS Discussion Paper 17/2025 8 4 Conclusions Understanding the impact of foreign policy tools on CRM trade is vital for policymakers in both high-income and developing countries. For advanced economies, stable and sustainable access to CRMs is crucial for economic security and industrial competitiveness. For developing countries, trade-related policies offer pathways to integrate into global value chains and attract investment in CRM extraction and processing. Our empirical analysis reveals that PTAs significantly enhance the CRM imports of OECD countries from developing countries, affecting both the intensive and extensive margins of trade. In contrast, BITs primarily influence the intensive margin, while AfT supports the extensive margin. These findings suggest that advanced economies should not focus solely on financial assistance and investment to secure CRM access but should also keep PTAs firmly in focus. A well-calibrated policy mix – combining trade diplomacy, investment, and targeted aid – is likely essential for resilient and diversified CRM supplies. Interestingly, neither the depth of PTAs nor the complexity of BITs appears to be decisive. In some cases, the provisions contained in PTAs may even hinder the development of new supplier relationships. Sectoral regressions further indicate that PTAs are linked to trade in downstream CRM processing. This suggests that PTAs may promote local value addition by encouraging CRM refinement within developing countries before export, generating local content, and supporting pro-development outcomes. 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Journal of Cleaner Production, 389, 136110. https://doi.org/10.1016/j.jclepro.2023.136110 IDOS Discussion Paper 17/2025 11 Appendix Table A1: Exporting countries in the sample Afghanistan Ghana Palau Albania Grenada Palestine Algeria Guatemala Panama Angola Guinea Papua New Guinea Anguilla Guinea-Bissau Paraguay Antigua and Barbuda Guyana Peru Argentina Haiti Philippines Armenia Honduras Rwanda Aruba Hong Kong Saint Helena, Asc. and Tr. da C. Azerbaijan India Saint Kitts and Nevis Bahamas Indonesia Saint Lucia Bahrain Iran Saint Vincent and the Grenadines Bangladesh Iraq Samoa Barbados Israel Sao Tome and Principe Belarus Jamaica Saudi Arabia Belize Jordan Senegal Benin Kazakhstan Serbia Bermuda Kenya Seychelles Bhutan Kiribati Sierra Leone Bolivia Korea, Democratic People’s Republic of Singapore Bosnia and Herzegovina Korea, Republic of Sint Maarten Botswana Kyrgyzstan Slovenia Brazil Lao People’s Democratic Republic Solomon Islands Burkina Faso Lebanon Somalia Burundi Lesotho South Africa Cabo Verde Liberia South Sudan Cambodia Libya Sri Lanka Cameroon Macao Sudan Cayman Islands Madagascar Suriname Central African Republic Malawi Syrian Arab Republic Chad Malaysia Tajikistan Chile Maldives Tanzania China Mali Thailand Colombia Malta Timor-Leste Comoros Marshall Islands Togo Congo Mauritania Tokelau Cook Islands Mauritius Tonga Costa Rica Mayotte Trinidad and Tobago Côte d’Ivoire Mexico Tunisia Croatia Micronesia Turkey Cuba Moldova Turkmenistan IDOS Discussion Paper 17/2025 12 Cyprus Mongolia Turks and Caicos Islands Democratic Republic of Congo Montenegro Tuvalu Djibouti Montserrat Uganda Dominica Morocco Ukraine Dominican Republic Mozambique United Arab Emirates Ecuador Myanmar Uruguay Egypt Namibia Uzbekistan El Salvador Nauru Vanuatu Equatorial Guinea Nepal Venezuela Eritrea New Caledonia Viet Nam Eswatini Nicaragua Virgin Islands Ethiopia Niger Wallis and Futuna Fiji Nigeria Yemen French Polynesia Niue Zambia Gabon North Macedonia Zimbabwe Gambia Oman Georgia Pakistan Table A2: Importing countries in the sample Australia Denmark Ireland Netherlands Spain Austria Estonia Italy Norway Sweden Belgium Finland Japan Poland Switzerland Bulgaria France Latvia Portugal United Kingdom Canada Germany Lithuania Romania United States Croatia Greece Luxembourg Slovakia Czech Republic Hungary Malta Slovenia IDOS Discussion Paper 17/2025 13 Table A3: List of base critical raw materials used for computation of dependent variable Aluminium Dysprosium Iridium Phosphate rock Tantalum Antimony Erbium Lanthanum Phosphorus Tellurium Arsenic Europium Lithium Platinum Terbium Baryte Feldspar Lutetium Praseodymium Thulium Beryllium Fluorspar Magnesium Rare earth elements Titanium metal Bismuth Gadolinium Manganese Rhodium Tungsten Boron Gallium Natural graphite Ruthenium Vanadium Cerium Germanium Neodymium Samarium Ytterbium Cobalt Hafnium Nickel Scandium Yttrium Coking coal Helium Niobium Silicon metal Copper Holmium Palladium Strontium Table A4: Summary statistics Obs. Mean Standard Deviation Min. Max. 𝑀𝑀 (imports [intensive margin]) 157,696 25,166 264,363 0 16,344,856 𝑀𝑀 (import dummy [extensive margin])) 157,696 0.40 0.49 0 1 𝑀𝑀 (mining imports) 157,696 12,856 207,015 0 16,331,429 𝑀𝑀 (processed imports) 157,696 9,801 115,368 0 7,861,460 𝑀𝑀 (fabricated imports) 157,696 3,476 48,605 0 4,390,963 𝑀𝑀 (recycled imports) 157,696 2,089 30,215 0 3,318,267 𝐴𝐴𝐴𝐴𝐴𝐴 157,696 1,985 25,582 -18,309 3,395,840 𝑃𝑃𝐴𝐴𝐴𝐴 157,696 0.22 0.41 0 1 𝑃𝑃𝐴𝐴𝐴𝐴 𝑑𝑑𝑐𝑐𝑐𝑐𝑡𝑡ℎ (non-normalised) 157,696 221.41 538.14 0 3,466 𝑃𝑃𝐴𝐴𝐴𝐴 𝑑𝑑𝑐𝑐𝑐𝑐𝑡𝑡ℎ 157,696 0.04 0.10 0 0.67 𝐵𝐵𝐵𝐵𝐴𝐴 157,696 0.20 0.40 0 1 𝐵𝐵𝐵𝐵𝐴𝐴 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑥𝑥𝑎𝑎𝑡𝑡𝑐𝑐 (non-normalised) 157,696 12.66 24.37 0 150 𝐵𝐵𝐵𝐵𝐴𝐴 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑥𝑥𝑎𝑎𝑡𝑡𝑐𝑐 157,696 0.08 0.16 0 1 Notes: CRM trade is measured in current million USD, except for the extensive margin; AfT data are in constant million USD.