Good Mine, Bad Mine: Natural Resource Heterogeneity and Dutch Disease in Indonesia

Tinbergen Institute Discussion Paper 2018-073/VIII

65 Pages Posted: 21 Oct 2018

See all articles by Paul Pelzl

Paul Pelzl

NHH Norwegian School of Economics

Steven Poelhekke

University of Auckland

Multiple version iconThere are 3 versions of this paper

Date Written: September 20, 2018

Abstract

We analyse the local effect of exogenous shocks to the value of mineral deposits at the district level in Indonesia using a panel of manufacturing plants. To the best of our knowledge, we are the first to model and estimate the effect of heterogeneity in natural resource extraction methods. We find that in areas where mineral extraction is relatively capital-intensive, mining booms cause virtually no upward pressure on manufacturing earnings per worker, and both producers of traded and local goods benefit from mining booms in terms of employment. In contrast, labour-intensive mining booms drive up local manufacturing wages such that producers of traded goods reduce employment. This source of heterogeneity helps to explain the mixed evidence for 'Dutch disease' effects in the literature. In addition, we find no evidence that fiscal revenue sharing between sub-national districts leads to any spillovers.

Keywords: Dutch Disease, Natural Resources, Mining, Labour Intensity, Indonesia

JEL Classification: L16, L72, O12, O13, Q30

Suggested Citation

Pelzl, Paul and Poelhekke, Steven, Good Mine, Bad Mine: Natural Resource Heterogeneity and Dutch Disease in Indonesia (September 20, 2018). Tinbergen Institute Discussion Paper 2018-073/VIII, Available at SSRN: https://ssrn.com/abstract=3256382 or http://dx.doi.org/10.2139/ssrn.3256382

Paul Pelzl (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://paul-pelzl.com

Steven Poelhekke

University of Auckland ( email )

Auckland
New Zealand

HOME PAGE: http://https://sites.google.com/site/stevenpoelhekke/

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