The Impact of Dodd-Frank and the Huawei Shock on DRC Tin Exports
Abstract
This paper investigates the structural transformation of the Democratic Republic of the Congo (DRC) tin market induced by the U.S. Dodd-Frank Act. Focusing on the breakdown of the pricing mechanism, we estimate the price elasticity of export demand from 2010 to 2022 using a structural identification strategy that overcomes the lack of reliable unit value data. Our analysis reveals that the regulation effectively destroyed the price mechanism, with demand elasticity dropping to zero. This indicates the formation of a ``captive market'' driven by certification requirements rather than price competitiveness. Crucially, we find strong hysteresis; deregulation alone failed to restore market flexibility. The structural rigidity was finally broken not by policy suspension, but by the 2019 ``Huawei shock,'' an external demand surge that forced supply chain diversification. These findings suggest that conflict mineral regulations can induce monopolistic bottlenecks that are resilient to simple deregulation.
Summary
This paper examines the impact of the Dodd-Frank Act and the subsequent "Huawei shock" on the Democratic Republic of Congo (DRC) tin export market between 2010 and 2022. The central research question revolves around how the Dodd-Frank Act altered the market structure and competitiveness of DRC tin exports, specifically focusing on the price elasticity of export demand. The study addresses the challenge of missing export price data by employing a structural identification strategy proposed by Nakano and Nishimura (2025), which leverages bilateral exchange rate variations to recover demand elasticity. Instead of a Difference-in-Differences approach, which is invalidated by the endogenous switching of trading partners, the authors use a structural break analysis, dividing the period into four regimes: pre-regulation, Dodd-Frank implementation, suspension period, and post-Huawei ban era. The key findings reveal that the Dodd-Frank Act effectively destroyed the price mechanism, causing demand elasticity to drop to near zero, creating a "captive market" driven by certification rather than price. The study also found a strong hysteresis effect, where deregulation alone failed to restore market flexibility. The market rigidity was only broken by the 2019 "Huawei shock," an external demand surge that forced supply chain diversification. The paper's contribution lies in providing empirical evidence of "structural rigidity" induced by conflict mineral regulations, demonstrating that these regulations can create monopolistic bottlenecks that are resilient to simple deregulation. This matters to the field because it highlights the unintended consequences of well-intentioned policies and the importance of considering market structure impacts.
Key Insights
- •The Dodd-Frank Act caused the price elasticity of demand for DRC tin to drop to near zero, indicating a breakdown of the pricing mechanism and a shift to a captive market.
- •The study used a structural identification strategy, originally developed for service trade, to estimate demand elasticity in the absence of reliable unit value data.
- •A strong hysteresis effect was observed, where the suspension of the Dodd-Frank Act did not immediately restore market elasticity, suggesting that established commercial relationships persisted.
- •The "Huawei shock" in 2019, an external demand surge driven by geopolitical factors, was the catalyst that broke the market rigidity and restored price sensitivity. The elasticity became significantly negative again (η=−3.47).
- •The estimated supply parameter ω was found to be negligible (ω≈0.089), supporting the assumption that DRC acts as a price taker in the global tin market and validating the identification strategy.
- •The study uses mirror statistics (import data) from DRC's trading partners to overcome issues with direct reporting from DRC customs authorities.
- •The Kleibergen-Paap rk Wald F-statistics from the first-stage regressions consistently exceed standard critical values, mitigating concerns about weak instruments.
Practical Implications
- •The findings highlight the potential for conflict mineral regulations to inadvertently create monopolistic market structures, reducing producer countries' bargaining power.
- •Policymakers should be aware that simple deregulation may not be sufficient to reverse market distortions caused by strict certification requirements.
- •Future research should investigate whether similar structural rigidities are emerging in other regulated critical mineral markets like cobalt or lithium.
- •The study provides a cautionary tale for the design of supply chain due diligence regulations, emphasizing the need for careful consideration of market structure impacts.
- •The structural identification strategy used in this paper can be applied to analyze other markets with limited price data, particularly in developing countries or sectors affected by regulations.