The Relationship between Mineral Rents and Poverty: Evidence from Sub-Saharan Africa and South America

Abstract

There has been considerable research over the years regarding the relationship between natural resource abundance and economic growth, yet much less is known about the link between natural resource abundance and prevalence of poverty. This thesis examines the question of whether mineral resource rents have helped to reduce poverty rates in countries with an extensive mineral base in a cross country case study analysis involving Botswana, Nigeria, Zambia, Bolivia, Chile, and Venezuela. The link between mineral rents and poverty is studied in the context of four major mechanisms; (1) the redistribution of resources across sectors of the economy (‘Dutch Disease’), (2) the distribution of rents between the domestic country with the natural resources and foreign extraction firms, (3) the allocation of resources among citizens, and (4) the reallocation of rents over time (for precautionary saving). While none of the countries have achieved substantial economic diversification, Chile emerges as the best performer in this case study. Chile has utilized its extensive mineral base to achieve strong economic growth as well as significant poverty reduction. Facilitating an encouraging private investment climate or a mix of public and private ownership that does not sacrifice productivity and efficiency seems to work in appropriating a stable and fair share of mineral rents. Rents that are prudently invested in the domestic economy, in foreign assets for precautionary saving, and in targeted policies designed to redistribute resources more equally among citizens can significantly reduce poverty, and increase social and economic development.