Sourcing from conflict regions: Policies to improve transparency in international supply chains

Abstract

In this paper, we study how unilateral policies concerning certain conflict raw materials influence prices, illegal mining activities, and welfare. Firms in the North import natural resources from the South to produce final consumption goods. In one of the countries in the South, local groups attempt to access natural resources, which results in rent-seeking conflicts with the government and in illegal mining. We find that a unilateral embargo against the conflict country as well as certification of legal mines can reduce rent-seeking and illegal mining with different welfare consequences in the countries involved.