Mining matters: Natural resource extraction and local business constraints

Research on VOXEU from

Ralph de Haas (EBRD) and Steven Poelhekke (VU Amsterdam):

Mining matters: Natural resource extraction and local business constraints

Summary:
The extraordinary expansion in global mining activity over the last two decades, and its increasing concentration in emerging markets, has reignited the debate over the impact of mining on local economic activity. This column analyses how the presence of nearby mines influences firms in eight countries with large manufacturing and mining sectors. Mines are found to out-compete local manufacturing firms for inputs, labour, and infrastructure. However, mining activity is found to improve the business environment on a wider geographic scale.

New OxCARRE research: Mining Matters; Natural Resource Extraction and Local Business Constraints

Ralph De Haas ([ebrd.com] European Bank for Reconstruction and Development; Tilburg University) and Steven Poelhekke ([sites.google.com] Vrije Universiteit Amsterdam; De Nederlandsche Bank)

Mining Matters; Natural Resource Extraction and Local Business Constraints

We estimate the impact of local mining activity on the business constraints experienced by 22,150 firms across eight resource-rich countries. We find that the presence of active mines deteriorates the business environment in the immediate vicinity (<20 km) of a firm but relaxes business constraints of more distant firms. The negative local impact of mining is concentrated among firms in tradable sectors whose access to inputs and infrastructure becomes more constrained. This deterioration of the local business environment adversely affects firm growth and is in line with a natural resource curse at the sub-national level.

Read on here [oxcarre.ox.ac.uk]

New Research: How does Local Mining Impact on Rural Immigration: Case of Mongolia

A short paper by Amartuvshin Amarjargal (University of the Humanities, Ulaanbaatar) , Yaoqi Zhang School of Forestry & Wildlife Sciences, Auburn University, Jiquan Chen (Michigan State University) write on

How does Local Mining Impact on Rural Immigration: Case of Mongolia

Abstract

After 70 years of communist regime, Mongolia chose a radical transition for democracy and a market economy in 1990. Since the 2000s, the Mongolian government has been promoting the mining industry to increase its foreign exchanges. The mining sector may offer local job opportunities and revenues, but might also cause loss and degradation of pasture land the local people depend on. An empirical study is conducted to investigate whether the immigration of rural people from a mining area is different from that of a non mining area using a probit model based on a 2013 workforce survey of Mongolia. The result shows that mining soums receive fewer outsiders than the non-mining soums, suggesting local mining activities exert limited economic linkage in local community for a case of Mongolia.

See paper here [colostate.edu].

What is also suggested in the paper, but doesn't come out strongly in the statistics is that mining may cause an outward push from local communities away from mining because of harmful effects of mining development on their traditional sources of income of cattle. Mining is accompanied with the buildup of dust, and pollution of water resources that force nomadic communities to move away. Consequently, since these negative effects are born by a some communities more than others, they add to the unequal distribution of the rents. At least, this is what anecdotal evidence suggest [futurechallenges.org] according to the first author. Better data, particularly with a time-dimension, would be required to show these things in a statistical way.

Azerbaijan jails journalist who exposed president's family links to gold mine ownership

A court in Azerbaijan sentenced, Khadija Ismayilova, a journalist to 7.5 years in prison for tax evasion and embezzlement (see reports by the Guardian, incl. response of mother, FT, and Radio Free Europe).

Working for Radio Free Europe, she has exposed the links of the family of the President Aliyev to profitable Azerbaijan businesses, including a Gold mine [rferl.org] in the west and mobile phone operator.

However, the gold mine is not the 'big thing' in Azerbaijan (the mine reportedly contains US$2.5B worth of minerals), oil and gas is. Although there is strong interest in this story from western governments, including the US [rferl.org], and international organisations, Azerbaijan position in the supply of natural gas from the Caspian sea to the same countries, makes a criticism muted. BP has largest stake in the gas project Shah Deniz in Azeri Caspian Sea, next to Socar, the national oil and gas company, followed with smaller stakes of others. Norway's Statoil and France' Total recently sold [bloomberg.com, see also FT] their stakes in the project.

Some human rights organisations now press governments to consider sanctions [eurasianet.org] on Azerbaijan for its crackdown on and jailing of human rights activists and journalists. As the article in Eurasianet indicates, the potential for sanctions has recently increased as the geopolitical position of and western corporate interests in Azerbaijan have diminished.

The situation that would make potential action against the Azeri government possible, may simultaneously also be the reason why the government is behaving as it does. Weakened links with western countries may make it feel more independent. At the same time, de decline of energy prices makes there less of the spoils to around, which may explain the resulting tendency of the more autocratic leaning governments to start using the stick to stay on top. This was also something that came up during our visit to Baku in February.

Ms. Ismayilova thought it funny she was jailed for things that she accuses the government and presidential family of. She wrote in her closing statement [rferl.org] to the court that she would continue exposing government abuse from prison.

New research: poor institutions, rich mines: resource curse in the origins of the Sicilian mafia

Paolo Buonanno (Univerisity of Bologna), Ruben Durante [rubendurante.net] (Science Po), Giovanni Prarolo [google.com] (University of Bologna) and Paolo Vanin [unibo.it] (University of Bologna) write on

Poor institutions, rich mines: resource curse in the origins of the Sicilian mafia

Abstract:
With weak law-enforcement institutions, a positive shock to the value of natural resources may increase demand for private protection and opportunities for rent appropriation through extortion, favouring the emergence of mafia-type organisations. We test this hypothesis by investigating the emergence of the mafia in twentieth century Sicily, where a severe lack of state property-rights enforcement coincided with a steep rise in international demand for sulphur, Sicily's most valuable export commodity. Using historical data on the early incidence of mafia activity and on the distribution of sulphur reserves, we document that the mafia was more present in municipalities with greater sulphur availability.
Published in the Economic Journal, available here

New Research on Australia's mining boom

David A. Fleming and Thomas G. Measham [csiro.au] from CSIRO in Canberra, Australia have a collection of published papers documenting the effects of the mining boom in Australia.

In Australian Journal of Agricultural and Resource Economics [wiley.com], with Dusan Paredes,
Understanding the resource curse (or blessing) across national and regional scales: Theory, empirical challenges and an application

The relationship between resource extraction activity and economic growth has been widely studied in the literature, and the resource curse hypotheses emerged as a theory to explain the effects of resource windfalls on national economies. However, within countries, resource booms and busts can have distinctive effects across local economies, as extractive regions face particular economic consequences unlikely to be observed in nonresource regions. Empirically, most studies analysing the resource curse have relied on cross-country models to estimate effects and inform policy; however, the use of regional – within-country – analysis has gained attention from scholars lately, promoted by two advantages: it avoids unobserved country heterogeneities confounding economic outcomes caused by resources and exploits the subnational quasi-natural experimental conditions generated by endowments. This paper contributes to the resource curse literature by discussing its theoretical causes across scale (regional vs. national effects) and highlighting the empirical challenges involved in the analysis of mining economic impacts across regions. We complement the discussions by econometrically modelling economic growth across nonmetropolitan substate regions of Australia during a period of resource windfalls, finding that in most cases, resources have been a blessing for local economies, although negative effects have also been experienced in parts of the country.

In Resources Policy [sciencedirect.com]

Local job multipliers of mining

The mining industry is capital intensive, and generally, direct labour employed is low compared to other industries. Considering this, when analysing local economic effects of mining it is important to observe local job multipliers that the industry generates in other sectors of the economy. In this study we use data from the recent Australian mining boom to estimate local job multipliers from mining, using econometric models and avoiding the rigidities and strong assumptions that input–output based models rely on. With census data and samples of Australian sub-state regions, our estimations show that local multipliers of mining are important for some local services sectors such as transport and rental and accommodation services, while local job spillovers into tradable goods sectors (manufacturing and agriculture) are statistically not significant. We also show how the magnitude of local multipliers varies nationwide from those of regions where operating mines are located.

In Australian Journal of Agricultural and Resource Economics [wiley.com]
Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia

Complementing the scarce economic literature about local impacts of energy extraction booms, this paper empirically investigates economic outcomes related to the new coal seam gas (CSG) industry located across southern Queensland. This Australian state has seen an unprecedented inflow of investments into the extraction of this previously unexploited unconventional natural gas over the last decade. We analyse census data to study income and employment effects associated with the CSG boom, exploiting the quasi-experimental conditions provided by CSG extraction areas (treatment regions) and regions without this development (control regions). Findings show that treatment regions have higher income growth than control areas during 2001–2011 for families residing locally and for individuals present on census night. Employment in the mining sector also shows higher growth as has non-mining employment in some areas. We include comparisons between CSG areas with no major mining history (the Surat basin) and CSG areas where mining was important before the CSG boom (the Bowen basin), to better understand boom effects in areas with different initial mining industry importance in their economies. Local job multipliers are also analysed for Surat basin CSG areas, where positive impacts (job spillovers) are restricted to construction and professional services jobs, while agricultural jobs have decreased.

In Australian Geographer [tandfonline.com],
Income inequality across Australian regions during the mining boom: 2001-11

As mining expands throughout the world, a growing body of literature is focusing on the relationship between mining and well-being in locations where resource extraction occurs. Although many topics such as employment and migration have been researched, the impacts of mining on income inequality have received less attention from scholars. Income inequality is a highly debated topic and the Gini coefficient (GC) one of the most popular indicators used to measure and discuss it. In this paper we estimate GCs for all sub-State regions of Australia and analyse their changes during the ‘mining boom decade’ (2001–11) across mining and non-mining regions. Our results show that, on average, income inequality increased by around 4.8 per cent in mining regions, compared to 8.7 per cent in the average non-mining region. However, the results also show important variation in changes of GC across mining regions, suggesting that the industry is likely to affect the distribution of local incomes in different ways. The method we propose to estimate GCs for regional areas and the results obtained across mining and non-mining regions provide important insights for future research and for regional policy makers, especially those concerned with the socio-economic impacts of industries such as mining across regions.

NYT: Inquiry Blames South African Police in Killings of Miners at Marikana

NYT: South African President Jacob Zuma released the report of the inquiry in the killings at the Marikana mine back in 2012. Last year we also featured the story. The report puts the blame at the police, and absolved Cyril Ramaphosa, South Africa’s deputy president since 2014, and at the time of the massacre a Lonmin non-executive board member and former leader of one of the unions. He has been accused by lawyers of victims and their families to have instigated the police to suppress the striking miners, who were members of a competing union. Now that he has been absolved, according to one reporter [twitter.com], his path to the presidency may be open .

New Research: Mining and local corruption in Africa

A new working paper by Andreas Kotsadam [wordpress.com], Eivind Hammersmark Olsen [uio.no], Carl Henrik Knutsen [uio.no], and Tore Wig [uio.no], all at University of Oslo (and other affilitations)

Mining and local corruption in Africa

Abstract:

We investigate whether mining affects local-level corruption in Africa. Several cross-country analyses report that natural resource production and wealth have ad- verse effects on political institutions, for instance by increasing corruption, whereas other country-level studies show no evidence of such “political resource curses”. These studies face well-known endogeneity and other methodological issues, and employing alternative designs and micro-level data would allow for drawing stronger inferences. Hence, we connect 90,000 survey respondents in four Afrobarometer survey waves to spatial data on about 500 industrial mines. Using a difference-in-differences strategy, we find evidence that mining increases bribe payments. Mines are initially located in less corrupt areas, but mining areas turn more corrupt after mines open and actively produce. A closer study of South Africa — using even more precise spatial matching of mines and survey respondents — corroborates the continent-wide results. Hence, mineral production is, indeed, a “curse” to local institutions.

Available here [pdf, uio.no]

New Research: The Local Impact of Mining on Poverty and Inequality: Evidence from the Commodity Boom in Peru

Norman Loayza [worldbank.org] (World Bank) Jamele Rigolini [iza.org] (IZA) write on

The Local Impact of Mining on Poverty and Inequality: Evidence from the Commodity Boom in Peru
Abstract:

This paper studies the impact of mining activity on socioeconomic outcomes in local communities in Peru. In the last two decades, the value of Peruvian mining exports has grown by fifteen times; and since a decade ago, one-half of fiscal revenues from mining have been devolved to local governments in producing regions. Has this boom benefitted people in local communities? We find evidence that producing districts have larger consumption per capita and lower poverty rates than otherwise similar districts. However, these positive impacts decrease drastically with administrative and geographic distance from mining centers. Moreover, consumption inequality within producing districts is higher than in comparable nonproducing districts. This dual effect of mining is partially accounted for by the better educated immigrants required and attracted by mining activity. The inequalizing impact of mining, both across and within districts, may explain the social discontent with mining in Peru, despite its enormous revenues.

Full paper here [perueconomics.org]

Which adds to the stock of papers on local impact and resource extraction, reviewed in a paper discussed last week [oxcarre.blogspot.co.uk]. See also the meta-analysis on mining and poverty, discussed here [oxcarre.blogspot.co.uk].