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Natural Resource use Conflict: Gold Mining in Tropical Rainforest in Ghana

Wisdom Akpalu and Peter J. Parks ()
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Peter J. Parks: Department of Agricultural Economics and Marketing, Cook College,, Postal: Rutgers University, New Brunswick, NJ

No 182, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Gold is frequently mined in rainforests that can provide either gold or forest benefits, but not both. This conflict in resource use occurs in Ghana, a developing country in the tropics where the capital needed for mining is obtained from foreign direct investment (FDI). We use a dynamic model to show that an ad valorem severance tax on gross revenue can be used to internalize environmental opportunity costs. The optimal tax must equal the ratio of marginal benefits from forest use to marginal benefits from gold extraction. Over time, this tax must change at a rate equal to the difference between the discount rate and the rate of change in the price of gold. Empirical results suggest that the 3 percent tax rate currently used in Ghana is too low to fully represent the external cost of extraction (i.e., lost forest benefits).

Keywords: Optimal taxation; Efficiency; Externality; Dynamic analysis; Firm behaviour (search for similar items in EconPapers)
JEL-codes: C61 D21 H21 H23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2005-10-28
New Economics Papers: this item is included in nep-afr, nep-env and nep-pbe
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Published as Akpalu, Wisdom and Peter J. Parks, 'Natural Resource use Conflict: Gold Mining in Tropical Rainforest in Ghana' in Environment and Development Economics, 2007, pages 55-72.

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