GOLD IN THE DUST: The impact of artisanal mines on local living standards

28 Mar 2018

Perhaps as much as 4% of the world''s population depends directly on artisanal mines, which produce about 20% of the minerals we use. And according to research by Remi Bazillier and Victoire Girard, they have a positive impact on local living standards.

Their study, to be presented at the Royal Economic Society''s annual conference at the University of Sussex in Brighton in March 2018, takes Burkina Faso as a case study to investigate the impact of artisanal mines. They finds that when the gold price increases, people who live next to artisanal mines consume more – and this is the best proxy for an improvement in incomes in a developing country context.

In sharp contrast with the local impact of artisanal mines, the opening of industrial mines does not improve local consumption. Artisanal mines are managed like common properties: they are inefficient, but virtually everyone can have access to a share of the gold. Industrial mines privatise the access to gold by enclosing their production areas.

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Artisanal mining may improve local living standards. Artisanal mining is a labour-intensive and dusty activity, raising concerns that it ''may cause severe environmental and health risks, conflict and generally few economic benefits'' (Cust and Poelhekke, 2015). But analysis of unique data from Burkina Faso reveals that people living around artisanal mines do benefit from them.

Roughly 2-4% of the world population directly depends of artisanal mines, which produce about 20% of the minerals we use. Making a step aside from existing research on the link between mines and conflicts (Lujala et al., 2005; Sánchez de la Sierra, 2017), the new study provides the first large-scale quantification of the impact of artisanal mines on local living standards.

Two sources of variations make Burkina Faso an ideal case study to investigate the impact of artisanal mines:

• First, gold reserves are scattered all over Burkina Faso, such that some people live close to an artisanal mine and some don''t.

• Second, the gold price increased fourfold over the 2000s, such that the benefit of digging gold has changed over the time.

The researchers are able to exploit this quasi-natural experiment thanks to detailed information on household level consumption, collected both before and after the increase in the gold price.

What happens to people who live next to artisanal mines when the gold price increases? They consume more. Consumption is the best proxy for income in a developing country context; hence such an increase in consumption is good news.

A back-of-the-envelope calculation suggests that a high gold price translates into 8 additional cents (in euros) of consumption each day, for each person living around an artisanal mine. The amount of additional consumption may seem small at face value. But 8 cents is a big increase in relative terms: it corresponds to a 15% increase in consumption.

In sharp contrast with the local impact of artisanal mines, the opening of industrial mines does not improve local consumption. Industrial gold mines are only ten years old, but they already produce tend times more gold than artisanal mines.

Despite the scale of production, the local impact of industrial mines is not always granted (even if local content policies, as encouraged by the World Bank, may be successful in some contexts – see Aragon and Rud, 2013).

The contrast between the local impact of artisanal and industrial mines is all the more policy-relevant given that mines often compete for overlapping areas. These results outline that there may be an equity consequence, next to the efficiency consequence, of opening an industrial mine instead of an artisanal mine.

Indeed, artisanal mines are managed like common properties: they are inefficient, but virtually everyone can have access to a share of the gold. Industrial mines privatise the access to gold by enclosing their production areas.

References

Aragón, F. M. and J. P. Rud (2013 ''Natural resources and local communities: Evidence from a Peruvian gold mine'', American Economic Journal: Economic Policy 5(2): 1-25.

Cust, J. and S. Poelhekke (2015) ''The local economic impacts of natural resource extraction'', Annual Review of Resource Economics 7(1): 251-68.

Lujala, P., N. P. Gleditsch, and E. Gilmore (2005) ''A diamond curse? Civil war and a lootable resource'', Journal of Conflict Resolution 49(4): 538-62

Sánchez de la Sierra, R. (2017) ''On the origins of the state: Stationary bandits and taxation in eastern Congo'', mimeo.

Victoire Girard

+336 62 25 70 62 | victoire.girard@univ-orleans.fr