Dear all, we kindly invite you to our next Economic Theory and Policy Seminar Talk on Monday, March 10, 2025, 4:00 PM - TU Wien, Seminarroom: DB gelb 04 (Freihaus Building, 4th floor, yellow area) "Industrial Policy in Supply Chains and Directed Technological Change: Evidence from Rare Earths" Harald Fadinger (University of Vienna) https://www.vwl.uni-mannheim.de/fadinger/ Industrial policies, traditionally aimed at boosting the competitiveness of protected sectors, can inadvertently drive productivity growth in downstream sectors abroad. We document this mechanism using the case of rare earth elements (REE) – critical inputs for manufacturing and the green transformation, with production highly concentrated in China. To assess the importance of REE across industries, we construct an input-output table incorporating individual REE inputs. Using data on REE-related patents classified by a large language model and sectoral TFP, we show that the introduction of REE export restrictions by China led to a global surge in innovation in REE-intensive downstream sectors outside of China. Additionally, exports by these sectors increased, following the adverse REE supply shock. To rationalize these findings and quantify the global impact of the Chinese REE policies, we develop a quantitative general equilibrium model of trade and directed technological change. Under endogenous technologies, input-supply restrictions shift the direction of innovation in downstream sectors toward scarce inputs when inputs are gross complements, which can lead to the expansion of these sectors. Further Events: https://www.tuwien.at/en/mg/econ/events Best, Julia Hutter for Alexia Fuernkranz-Prskawetz Julia Hutter TU Wien Institute of Statistics and Mathematical Methods in Economics Research Group Economics Phone: +43 1 58801 10531 Mail: julia.hutter@tuwien.ac.at<mailto:julia.hutter@tuwien.ac.at> https://econ.tuwien.ac.at/