Friday, July 12, 2013

The Unintended Consequences of Conflict Mineral Policies

Draft: There is widespread perception that trade in “conflict minerals” is causing violence in the Democratic Republic of Congo (DRC). Policy responses include the U.S. Dodd-Frank Act of 2010, which regulates companies whose products contain conflict minerals, and the DRC’s ban on artisanal mining in three of its provinces during 2010-2011. We develop a simple theory to explain why these restrictions on trade in minerals could cause violence to increase in the DRC. The theory is inspired by Mancur Olson’s (2000) stationary bandit metaphor, and suggests that the higher present value of mining sites prior to Dodd Frank caused armed groups to ‘protect’ miners and encourage steady long-run production. By lowering the value of certain mines, the policies caused the armed groups to behave like the more dangerous roving bandit, who has less stake in the future economic productivity of a mining area. We test the implication by merging geo-referenced datasets on armed conflict, militarized mining sites, and mineral prices. We find evidence that the policies increased the incidence of conflict in mining territories shortly after their enactment by about 57 percent.

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