Thursday, August 11, 2022

Do Mining Economies Save Too Little?

I'm currently teaching Agricultural and Resource Economics for the first time. This week we started covering non-renewable resources focusing on minerals. One of the topics I covered is the resource curse. One of my sources is van der Ploeg's article "Natural Resources: Curse or Blessing?" published in the Journal of Economic Literature in 2011. In the paper, he reproduces this graph from a 2006 World Bank publication that apparently uses 2003 data from the World Development Indicators:

Genuine saving – now known as "adjusted net saving" – is equal to saving minus capital depreciation and various forms of resource depletion with expenditure on education added on. The idea is to measure the net change in all forms of "capital" in an economy. Mineral and energy rents are the pre-tax economic profits of mining. They are supposed to represent the return to the resource stock. The graph tells a clear story: Countries whose GDP depends heavily on mining tend to have negative genuine saving. So, they are not adequately replacing their non-renewable resources with other forms of capital. Van der Ploeg states that this is one of the characteristics of the resource curse.

Preparing for an upcoming tutorial on adjusted net saving and sustainability, I downloaded WDI data for recent years for some mining intensive countries, expecting to show the students how those countries still aren't saving enough. But this wasn't the case. Most of the mining economies had positive adjusted net saving. So, I wondered whether they had improved over time and downloaded the data for all available countries for 2003:

I've added a linear regression line.* There seems to be little relationship between these variables. The correlation coefficient is -0.017. Presumably, this is because of revisions to the data since 2006.

* I dropped countries with zero mining rents from the graph. The three countries at  top right with positive adjusted net saving are Saudi Arabia, Kuwait, and Libya. Oman and then does Democratic Republic of Congo have the next highest levels of mining rents and negative adjusted net savings.

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