The Micro-Foundations of the Resource Curse: Mineral Ownership and Local Economic Well-Being in Sub-Saharan Africa

Abstract

The quantitative evidence on whether extractive industries generate economic wealth at the local level is far from conclusive. In line with recent studies highlighting the moderating role of institutions and governance structures on the resource development nexus, we argue that the effect of mining on local economic well-being is largely driven by different control right regimes. We claim that domestic mineral production stimulates local income more than internationally-controlled extraction, since national mining companies promote more backward economic linkages and have higher incentives to engage in local capacity building. To test our micro-level arguments, we combine information on districts’ economic well-being as well as individual’s assessments of their personal economic situation with our own data set on the control rights of copper, gold and diamond mines. Relying on this data, we perform district and individual-level analyses of sub-Saharan Africa covering the period from 1997 to 2015. Our instrumental variable estimations and fixed effects models show that the presence of domestic mining companies is associated with increased local wealth. Multinational firms, by contrast, are linked to increased regional unemployment. They largely fail to promote subnational economic well being.