Rare-Earth Dependence, Cost Pressure, and Material-Cost Shares:Evidence from Five European Manufacturing Economies
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- This paper studies how measured industry dependence on rare-earth inputs shapes firms’ responses to country-specific rare-earth import unit-value movements. I combine Orbis accounting data for 2016–2024 with country-year rare-earth import unit-value indices and a fixed NACE4 total-requirement measure capturing both direct rare-earth use and rare-earth content embodied in upstream inputs. A benchmark production-and-pricing model implies that the material-cost share satisfies MS = αM s c/p, so a positive response is consistent with unit costs rising by more than output prices. The empirical design interacts fixed industry exposure with country-year rare-earth unit values and includes firm, country-year, and NACE4-year fixed effects. In the preferred M4 specification, which adds empirically motivated controls for broader price and factor-cost channels, the coefficient is 0.00888 with a country–NACE4 clustered standard error of 0.00424. Restricting the outcome period to 2018–2024 while keeping industry intensities fixed using 2016–2017 data leaves the estimate essentially unchanged. The evidence is nevertheless sensitive to inference, weighting, product composition, and treatment of the outcome tail. NACE4-only clustering and a countrysequence permutation diagnostic are more conservative; equalizing country weights weakens the estimate; and product-level results show that the positive aggregate association is concentrated in HS 284690, the dominant component of the import basket in most sample countries. I therefore interpret the estimates as suggestive reduced-form evidence rather than as a structural pass-through elasticity or a causal effect of exogenous changes in rare-earth transaction prices.