Export restrictions on industrial raw materials are increasingly used by developing economies to climb value chains. This column explores whether Indonesia’s 2014 ban on nickel and bauxite exports, which aimed to spur domestic processing and job creation, succeeded in promoting local economic development. Nickel districts saw a sustained rise in employment, especially in manufacturing and service, while bauxite districts faced employment losses. Export bans must be accompanied by a swift increase in domestic processing capacity, and policymakers must carefully consider commodity-specific factors.
Industrial raw materials such as nickel, cobalt, and rare earths are critical inputs in countless production processes, including renewable energy, lithium batteries, and permanent magnets. Globalisation has allowed advanced economies to source raw materials across the planet and specialise in the higher value-added segments of global supply chains. In contrast, developing countries often merely act as suppliers of raw materials and struggle to move up the value chain, such as by establishing domestic industries further downstream.
To address such imbalances, political leaders in developing countries have long experimented with import substitution and, more generally, industrial policy. These policy experiments – including import tariffs, subsidies, tax incentives, deliberate neutrality towards markets, and the targeted export promotion of promising industries – have typically produced mixed and highly context-dependent results (Harrison and Rodríguez-Clare 2010, Juhász et al. 2023, Reed 2024) and are heavily debated (Garcia-Macia et al. 2025, Javorcik 2025, Millot and Rawdanowicz 2024, Rotunno and Ruta 2024).
Recently, another form of industrial policy has grown in popularity among developing and emerging economies: export restrictions on industrial raw materials. China’s repeated export restrictions on a selection of rare earth elements are probably the most infamous, but China is not alone in applying this policy. According to the OECD (2025) and among 80 countries surveyed that cover 97% of the world production of minerals and metals, the number of export restrictions increased fivefold between 2009 and 2023, with 34 countries applying full export bans on at least one industrial raw material by 2023. Formal complaints with the WTO have not halted this trend (e.g. WTO 2022).
Figure 1 shows the export restrictions imposed by Indonesia, with ‘promoting downstream industry’ as one of the most commonly stated reasons for imposing such restrictions. For example, in 2014, Indonesia banned the export of raw nickel, bauxite, and several other minerals. The aim was to stimulate domestic mineral processing and eventually manufacturing sectors as far downstream as battery and EV production, and to promote local economic development (MINERBA 2021: ii-iii, 59). With Indonesia being the world’s largest exporter of nickel ore and bauxite (the main input for aluminium production) before the ban, industry analysts considered the export restrictions “the biggest supply risk facing base metals in a long time, particularly nickel and aluminium” (Financial Times 2014).
Figure 1 Indonesia: Active export restrictions on industrial raw materials by reason, 2009–2023
While the stated goal of export restrictions is typically to promote downstream processing industries, boost local employment, and accelerate structural transformation, little is known about their effectiveness for development. Absent prior development of domestic processing capacity, mining output is bound to decline following the restrictions, negatively affecting export revenue and employment. Conversely, investment into mineral processing can (at least partly) offset this decline, promote manufacturing employment in processing areas, and potentially generate spillovers into other local sectors or regions supplying inputs.
In Bosker et al. (2025), we exploit detailed, locally-representative data from the annual labour force survey of Indonesia to provide novel evidence on whether such policies (and in particular the 2014 export ban) can indeed promote local economic development.
Figure 2 shows the evolution over time of Indonesia’s nickel and bauxite mining and the production of processed products: nickel ore smelted into ferronickel, matte or mixed hydroxide precipitate, and bauxite processed into alumina and aluminium. The figure clearly shows a drop in mining in 2014 and a later recovery.
Figure 2 Production and export of nickel and bauxite in Indonesia, 2009–2023
A back-of-the-envelope calculation suggests that the policy was very successful for nickel: the total export value of all nickel-containing ores and derivatives increased from $3.1 billion in 2013 to $19.2 billion in 2023, while nickel ore prices appreciated only 46%. Of this, raw ore smelted into processed nickel products represented only $1.3 billion in 2013 but the entire $19.2 billion in 2023. This was a result of Indonesia attracting substantial investment into domestic nickel processing after the ban.
In contrast, (investment in) the processing of bauxite into alumina did not increase markedly after 2014. The main reason was that previous buyers of Indonesian bauxite could easily switch to alternative suppliers, sharply reducing incentives to invest in Indonesian bauxite processing plants. As a result, the export value of all bauxite-containing ores, alumina, and aluminium decreased from $2.4 billion in 2013 to $1.6 billion in 2023, despite bauxite prices appreciating by 11%.
How did these aggregate effects translate into local employment, another key goal of the policy? We combine detailed and representative labour-market survey data over 2009–2023 with district-level data on mineral-specific endowments and processing capacity to identify the effects of the export ban on local labour market outcomes. We exploit plausibly exogenous variation in the timing of the export restrictions and the opening of new processing facilities, as well as variation in the spatial distribution of Indonesia’s mineral deposits.
We find positive employment effects of the export ban in nickel districts. In the average nickel-endowed district, the export ban led to a sustained increase in aggregate employment by 3.0%, corresponding to 3,400 jobs in the average nickel district (or 57,800 jobs across all nickel districts). As Figure 3 shows, this positive effect is primarily driven by a rise in manufacturing and service sector employment.
Figure 3 Export restrictions and (ln) sectoral employment
Mining employment falls immediately after the imposition of the export ban, but recovers as domestic nickel processing capacity picks up a few years later. By contrast, agricultural employment initially rises and later drops, consistent with idle mining workers initially moving into agriculture but later moving back as the mining sector rebounds.
In sharp contrast to nickel, the export ban on bauxite did not have the intended consequence of stimulating local employment. With (new) investment in domestic bauxite processing largely lacking and bauxite output thus remaining below pre-ban levels, we find that the ban actually had a lasting negative impact on employment in bauxite-endowed districts. In terms of magnitude, a bauxite district loses 1.5% of jobs compared to before the ban, corresponding to 2,600 jobs (or 23,000 jobs across all bauxite districts). This is primarily driven by mining workers losing their jobs, with only few of those workers finding new jobs in the mining districts’ agriculture, services, or manufacturing sectors.
We find that new smelter openings contribute to a district’s structural transformation, but add little to nothing in terms of overall employment. Agricultural job losses are consistent with media and policy reports suggesting that there are substantial negative environmental and health effects of nickel processing (Climate Rights International 2025).
Nickel processing requires vast amounts of energy, provided by off-grid coal power plants that are built in close vicinity to smelters. Coal was completely left out of Indonesia’s export restrictions, but the additional demand for coal sparked a marked increase in Indonesian coal production. Mining employment significantly rises in coal districts following the expansion of Indonesia’s nickel processing capacity, but total employment is unaffected. Additional results suggest that these mining workers are primarily coming from the local services sector.
Considering that burning coal emits vast amounts of carbon dioxide and other (local) pollutants relative to all other sources of energy, this boom in coal mining and burning is an ironic side-effect of a policy that ultimately aims to produce inputs into renewable energy, such as batteries for electric cars.
Our findings provide a strong message to other countries considering the use of export restrictions on raw materials with the aim of moving up the global value chain: such restrictions must be accompanied by a swift increase in domestic processing capacity to promote local development. Failing to do so implies foregone export revenue and local job losses.
In anticipating the commodity-specific effects of an export ban – and thus for deciding the set of commodities to include in the ban – policymakers must carefully consider commodity-specific factors such as ex-ante domestic processing expertise and capacity, the expected response of pre-ban buyers and international markets to a ban, the domestic availability of other crucial inputs into the processing industry, and the likelihood of attracting foreign direct investment into processing. In the Indonesian case, these factors differed markedly across nickel and bauxite, explaining the mixed fate of its different mining regions after 2014.
For now, there is little scope for the ban to have substantial effects on industries even further downstream: stainless steel production has started in recent years, but most of the output is exported, while domestic battery production only started in 2024 at one factory. As these domestic industries develop further and produce at competitive prices, they may also contribute to Indonesia’s development in future years.
Source : VOXeu
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