How Much Does Natural Resource Extraction Really Diminish National Wealth? The Implications of Discovery - Working Paper 290

Alan Gelb
Authors registered in the RePEc Author Service: Kai Kaiser ()

No 290, Working Papers from Center for Global Development

Abstract: The paper considers the process of discovery for subsoil resources, including both hard minerals and hydrocarbons and estimates its magnitude in recent years, as derived from the sum of extraction and changes in proven reserves. Spurred on by technology change and strong market conditions, discovery has been substantial for most minerals. The value of discovered reserves is high relative to the costs of exploration, particularly when low social discount rates are used to value potential production in the future. Discovery is therefore valuable and should be considered as adding to national wealth through increases in proven reserves. Many countries can continue to generate resource rents far longer than indicated by current reserve estimates and this has implications for decisions on how to plan to spend or save rents. With the high response of discovery to prices and technology, environmental constraints (climate change, water) are more likely than the actual exhaustion of resource deposits to limit resource-based development. The divergence between private and social valuation of discoveries may also justify measures taken by countries to encourage exploration, including through the provision of geo-scientific data to increase interest in discovery as well as competition among mining companies. More information is needed on the payoff to such investments, some of which are supported by donors. However, exploration is, of course, only a slice of the resource value chain. Many countries will need to improve management along the entire chain if resource wealth is to benefit their development

Keywords: development; mining; natural resource; resource rich; hydrocarbons; depletion; extractive; wealth measurement. (search for similar items in EconPapers)
JEL-codes: E01 O10 O13 Q30 Q31 Q32 Q40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-03
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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