The Gravity of Critical Raw Materials: Understanding the Distance Elasticity of Trade

Details

Supervisors

Vannoorenberghe, Gonzague ; Mau, Karsten

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité spécialisée

Abstract

The world is at a critical juncture as it faces major interrelated challenges, particularly climate change and the depletion of natural resources. These are exacerbated by geopolitical challenges impeding on countries’ progress towards reaching targets for the green and energy transition. Within this context, studying the impact of geographical distances on critical raw materials’ (CRMs) trade is pivotal to inform and align trade and industrial policy with the aim of fostering resilience and sustainability. This paper studies this impact by employing the gravity model to analyse global bilateral trade flows of 32 CRMs between 2002 and 2021. It applies the standard techniques in the empirical gravity literature, such as the use of fixed effects and the PPML method to deliver robust results. Additionally, endogeneity issues are identified, and measures to reduce the bias and obtain efficient results are taken. The findings confirm the negative impact distance has on trade. However, the extent of this sensitivity to distance varies across the different CRMs. The results point towards developing strategies tailored for each CRM, contributing to the emerging niche of research in international economics. By examining the relationship between distance and trade dynamics within this context, this research expands the understanding of how economies can optimise their resource utilisation and enhance supply security.