‘Conflict Minerals’ and the Dodd Frank Act – New Working Paper

Seemingly everyone knows about ‘conflict minerals’. They are probably in our phones and laptops—even some of our jewelry is made out of them. Almost everyone wants to make ‘conflict minerals’ a thing of the past. Despite having little to do with Wall Street financial reform, Section 1502 of the Dodd Frank Act implemented a reporting requirement on all publicly traded companies in the US. Modeled after the “Kimberly Process”, the international regulation on ‘blood diamonds’, the Dodd Frank Act requires companies to report annually on audits investigating the presence of ‘conflict minerals’ in their supply chain.

Although almost everyone will agree that establishing international norms that improve the transparency of global trade and natural resource extraction is a good thing, the passage and implementation of Section 1502 of the Dodd Frank Act has been controversial. Political representatives of US manufacturing companies point out that the cost of compliance to this legislation is far too burdensome and may diminish any sales of minerals from countries at risk of exporting ‘conflict minerals’.

Others, mainly academics and researchers familiar with specific details about conflict in the Democratic Republic of the Congo and surrounding countries, argue that the policy is built on the faulty assumption that minerals cause conflict. Conflict is rather caused by a complicated mix of poverty, inequality, a weak and paranoid state, issues with land ownership, and decades of ethnically defined animosity.

All of these factors could be influenced by the passage of the Dodd Frank Act. Therefore, the Dodd Frank Act has the potential to either increase or decrease the prevalence of conflict. This all raises the question that is the topic of a new working paper: What is the impact of the Dodd Frank Act on conflict in the DRC and surrounding countries?

The paper is entitled, “Good Intentions Gone Bad? The Dodd Frank Act and Conflict in Africa’s Great Lakes Region“. Here is the abstract:

The Dodd Frank Act imposes reporting requirements on US companies regarding the presence of ‘conflict minerals’ in their supply chains. The explicit intention of this policy is to reduce the violence and conflict in Africa’s Great Lakes Region allegedly funded in part by the international trade of ‘conflict minerals’. Despite broad agreement in the goal to reduce the United States’ role in supporting armed conflict around the world, the implementation of this legislation is controversial. I empirically analyze the impact of the Dodd Frank Act on the prevalence of conflict events in the Democratic Republic of the Congo and surrounding countries. Difference-in-differences estimates show that the Dodd Frank Act increased the probability of conflict at the second sub-national administrative level. These results are robust to permutation tests and synthetic control estimation. This study, therefore, finds evidence of unintended consequences of mandatory reporting requirements as a stand-alone policy intended to reduce conflict.

Consistent with previous research (here, here, here, and here) but using a different estimation strategy, I find fairly clear evidence that the Dodd Frank Act is not leading to its intended outcomes in the DRC and surrounding countries and may be making the entire situation worse. I estimate that the passage of the Dodd Frank Act roughly doubled the probability that a conflict event occurs in the second sub-national administrative region.

This paper is still very much a working draft. I am only posting a draft publicly now because I’ll be presenting on this work at this summer’s Agricultural and Applied Economics Association (AAEA) meetings in Washington DC, and all presenters are required to submit drafts by next week. So, I’d appreciate any feedback or comments anyone has regarding this paper.

Updated on August 3, 2018 with revised draft of the working paper.

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