Limited evidence for mining-induced regional development: A case study on Mexico, Peru and Chile

Sebastian Luckeneder, Stefan Giljum & Tamas Krisztin

FINEPRINT Brief No. 6, June 2019

The question how mining affects economic development has been a topic of hot debate in both academia and policy. We investigate whether claims hold that raw material extraction activities directly and indirectly stimulate the economic performance of mining regions and their surrounding areas. A panel-structure spatial econometric model is applied that allows isolating mining-induced growth effects. Evidence from Mexican, Peruvian and Chilean regions over the period ‚€€ˆ2008-2015‚€… indicates that there is no general positive stimulus of mining activities on economic growth.
PDF

Global metal ore extraction has doubled within the last twenty years, largely due to China and other emerging economies becoming international economic players in the early 21st century. But not only the geographies of global material use have shifted, also the patterns of resource extraction have increasingly concentrated. Many developing countries have been integrated into the world economy as providers of raw materials and in doing so negative environmental and social effects of international consumption were peripheralised. This study therefore draws to mining economies of the Global South, selecting Mexico, Peru and Chile for our case study. According to UN IRP global material flow data [1], these three countries contributed a significant 14% share to global metal ore extraction in 2017, with Chile (7%) being the primary extractor (Figure 1).

Global metal ore extraction 1970-2017

Figure 1: Global metal ore extraction 1970-2017

Limited evidence that mining would drive local income

Aggregating mine-specific data on metal ore extraction [4] at the respective regional level and comparing it to short- and medium-run regional GDP growth rates [5] yields first empirical evidence regarding the relationship between mining intensity within regions and their respective economic development. Figure 2 shows that there are different dynamics in Mexican, Peruvian and Chilean regions regarding the correlation between economic growth and extraction intensity. While no clear correlation is evident for Mexico, there appears to be a negative relationship for the two Andean countries.

Sub-national aggregated ore extraction versus average annual regional GDP growth rates

Figure 2: Sub-national aggregated ore extraction versus average annual regional GDP growth rates

However, the two scatter plots only indicate correlations between two regional characteristics and do not allow drawing conclusions about causality. In order to isolate the effect of extraction intensity, we employ a panel-structure Spatial Durbin Model [6] incorporating spatial spillovers as well as potential heteroskedasticity due to country-specific characteristics in the data. The study exploits a panel of 32 Mexican, 24 Peruvian and 16 Chilean regions over the period 2008-2015. In doing so, it relates mine-specific data on extraction intensity to regional economic impacts, controlling for further growth determinants such as initial income and the regional industrial mix.

Our results do not support the existence of major causal relationships. Obtaining mainly insignificant average impact estimates, neither our short-, nor our medium-run models depict clear evidence that mining intensity would serve as a determinant for regional economic growth. Allowing different slopes for each country in our model, we can only find positive effects for Mexico, while our estimations for Chile and Peru yield negative but statistically insignificant coefficients. No statements can be made regarding the average mining intensity over all three countries, which is most likely due to different country characteristics and impact directions cancelling each other out. Popular arguments raised by the mining industry that the extractive sector would trigger positive impulse for regional economic development hence cannot be verified.

Citation

Luckeneder, S., Giljum, S., Krisztin, T. 2019. Limited evidence for mining-induced regional development. A case study on Mexico, Peru and Chile. FINEPRINT Brief No. 6. Vienna University of Economics and Business (WU). Austria.

References

[1] UN IRP. Global Material Flows Database: Version 2017, http://www.resourcepanel.org/global-material-flows-database. Paris: United Nations Environment Programme; 2017.

[2] ICMM. Mining in Ghana – What future can we expect? London: International Council on Mining and Metals; 2015.

[3] ICMM. Resource endowment initiative: Synthesis of four country case studies. London: International Council on Mining and Metals; 2006.

[4] SNL. Metals and Mining Database. New York: S&P Global Market Intelligence; 2018.

[5] OECD. Regional database. Paris: OECD; 2018.

[6] LeSage JP, Pace RK. Introduction to spatial econometrics. Boca Raton: Taylor & Francis; 2009.

[7] Arias M, Atienza M, Cademartori J. Large mining enterprises and regional development in Chile: Between the enclave and cluster. Journal of Economic Geography 2014;14:73–95.