Is Mining A Curse?

Rini Novrianti Sutardjo Tui, ST, MBA, MT

Measurement of Mineral Dependence

International
Trade

Result of
mining

Governmental

Affects the
national
economy. Itd be
appropriate to
investigate
mineral export
relative to total
export.

It is linked (or not

linked) to
domestic economic
activities. Itd be
appropriate to
examine the size of
mineral sector
relative to the
overall economy.

How government
collects and uses
mineral revenue.
Itd be
appropriate to
look at
government
revenues from
mineral
production.

Poor Performance External Forces

Long-term trends in commodity prices

Relatively to the prices of manufactured goods. It argues that
relative commodity prices are falling over the longer term.

Short-term volatility of commodity prices

The argument is that commodity prices are more volatile than
prices of other goods and services.

Poor Performance Internal Stresses

A booming
commodity sector,
which exports to a
world market. The
expansion or
boom in exports
may be caused by
several factors.

A traditional export
sector, which is not
experiencing a
boom. In many
cases, this is
manufacturing or
agriculture.

3
A non-traded sector,
which produces
goods or services
that are not
imported or
exported because of
prohibitively high
costs of transport.
Many services are
non-traded.

The Dutch Disease

To the extent that there are

stresses associated with
adjusting to change
If governments respond to political
pressure and intervene to protect
the industries hurt by
the structural change
If the boom in mineral exports is
temporary, and it is difficult to
restart the traditional export
industries that shrank

Dutch Disease

Poor Performance Political Economy

Government protects
sectors affected by the
mineral boom

Effect of on the strength

and quality of
government institutions

Governments respond to
expanding mineral production
and prospect of contracting
production of other exports by
protecting these shrinking
sectors through tariffs, quotas,
or other trade restrictions.

Mineral wealth--with a
considerable degree of
determinism--leads to weak,
inefficient, and
sometimes corrupt institutions,
which in turn lead to poor
economic performance.

Economic Effects Regional Perspective

Region as a whole
Emphasizes the economic
contribution of mining
to the regional economy

Direct effects
are measured by
minings contribution
to gross domestic
product and hourly
earnings of mining
sector.

Linkages and
multipliers
consist of forward
linkage, backward
linkage, final demand
linkage, fiscal linkage.
Multiplier is the size of
linkage.

Multipliers

Multiplier

The total effect of an

economic divided by the
initial direct effect

A region's size

A region's
industry
structure

A region's
location

Economic Effects Project Perspective

Whose benefits and costs

count

Ex ante
When
considering
whether to
undertake an
investment
opportunity

Ex post
External effects
Presence of market
distortions due to
government

Time and risk

preferences

Which benefits and

costs count

When reviewing
the performance
of previous
investments

Economic Rents

Ricardian or
differential rent is
a concept that observed
higher-quality mineral
deposits will fetch
higher prices per unit of
mineral than low-quality
deposits therefore deserve
higher rental rates.

Hotelling rent is
that portion of the
value of a mineral deposit
attributable to the limited
physical availability of the
resource; it is that portion
of the price at which a mineral
deposit is sold in the market
place that is due to physical
scarcity.

Challenges in Managing Wealth

Creation

Distribution

Political

Investment

Mineral wealth
be created in
the first place,
consistent with
social
preferences for
environmental
quality and
other social and
cultural values

Mineral wealth
be shared
equitably-more
specifically
sharing of the
surpluses or
economics
rents from
mineral
production

Broader
economic and
political effects
of mineral
development,
and their
potential
problems, be
understood
and managed

Economic
benefits of
mining be
sustained-even as a
mine
inevitably is
depleted