Growth, Employment and Distribution Impacts of Minerals Dependency: Four Case Studies

by BERRY, A. , 2008
South African Journal of Economics Vol. 76:S2 August 2008

Cross-country evidence on the direct and indirect impacts of minerals dependency on growth suggests that the typical effect may be negative. The impact on employment and income distribution is even more likely to be adverse, since many minerals generate few jobs directly and may destroy more indirectly. Thus, countries heavily endowed with exportable natural resources cannot take it for granted that this condition will put them on a sustained and equitable development path. This study focuses on four countries – Indonesia, Chile, Venezuela and Nigeria – and looks at how they have handled export bonanzas, with focus on the employment as well as the growth fall-out. The big policy questions are: what is the best way for a country to use its mineral resources to achieve equitable development, and is there a significant role for industrial strategy in identifying new comparative advantages or can markets do a better job relatively unimpeded? The four case studies reviewed here suggest that, depending on the specifics of the country, promising new comparative advantages can emerge in the primary, secondary and tertiary sectors, while the role of service tradables should not be discounted. It is intriguing that the great majority of minerals-dependent countries to achieve sustained growth have also made significant progress in manufacturing. In a world that now penalises trade protectionism, the exchange rate can be a powerful tool to provide more neutral incentives for new tradables; indeed, one of the most striking features of the two success stories related here has been these countries’ timely use of currency devaluations to achieve highly competitive exchange rates. The experiences of the four countries further confirm the risks of focusing on capital-intensive industries in labour-surplus countries, as well as the risk of lodging such activities in the public sector. Only Indonesia of the four countries was able to achieve good enough employment growth under mineral dependency to avoid a high or rising level of inequality. Clearly the challenge on the employment/distribution front is severe