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

73 Pages Posted: 22 Sep 2020

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 2020

Abstract

We analyze the local effect of exogenous shocks to the value of mineral deposits on a panel of manufacturing plants in Indonesia. We introduce heterogeneity in natural resource extraction methods, which helps to explain the mixed evidence found in the `Dutch disease' literature. In districts where mineral extraction is relatively capital intensive, mining booms cause virtually no upward pressure on manufacturing wages, and both producers of more heavily traded and relatively less-traded manufacturing goods benefit from mining booms in terms of employment. In contrast, labor-intensive mining booms drive up local wages such that heavily traded goods producers respond by reducing employment.

Keywords: Dutch disease, Indonesia, labor intensity, mining, Natural resources, traded sector

JEL Classification: F00, L16, L60, L72, O12, O13, Q30

Suggested Citation

Pelzl, Paul and Poelhekke, Steven, Good Mine, Bad Mine: Natural Resource Heterogeneity and Dutch Disease in Indonesia (September 2020). CEPR Discussion Paper No. DP15271, Available at SSRN: https://ssrn.com/abstract=3696351

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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