Essays on natural resources and local economies

Development economics studies the dynamics in various areas such as poverty, health outcomes, economic development, economic growth etc. This thesis brings together a set of chapters that summarises and synthesises varied areas of development microeconomics. The thesis is composed of three main empirical chapters contributing to varied aspects of development economics, mainly the areas of natural resource curse and local communities, divestiture and its effects on local economies and the health and welfare impact of mining in a developing country setting. While researchers and policy makers focus on governance and macro-fiscal risks to identify areas for improvement, very little attention is being paid to the benefits gained by local communities living close to mining centers. This thesis has thus helped fill a gap that has been identified in previous literature by for example Cust and Poelhekke (2015) who observed that scholars are increasingly turning to within-country evidence to deepen our understanding of the potential drivers, and outcomes, of resource wealth effects. This shifts attention away from cross-country studies, thereby offers new perspectives on the resource curse debate, and can help overcome concerns regarding endogeneity. Chapter 1 provides an outline and introduction of the thesis. Chapter 2 provides an extensive and analytical review of how the natural resource curse affects the living standards in developing countries that have a rich endowment of natural resources focussing on the sub-national level. It discusses the causal economic impact of Zambia’s copper mines, a country located in sub-Saharan Africa endowed with vast copper deposits on living standards. It gives a detailed empirical literature on the natural resource curse and its relationship to local economies. Further, this chapter empirically analysed constituency data from 1996 to 2010, exploiting an episode where global copper prices were rising. The results highlight a significant impact of copper production on living standards. After splitting the constituencies close to and far away from the nearest mine, the results document that constituencies close to the mines benefited significantly from the increase in copper production. Finally, the results are not consistent with the natural resource curse hypothesis; findings show a positive causal relationship between the presence of natural resources and socioeconomic outcomes in less developed countries, particularly for constituencies close to the mines in Zambia. Chapter 3 provides a detailed analysis of the effect that privatization has on local economies. It provides the main objectives of privatization. It also gives a detailed empirical literature of privatization, mining and how developing countries have been impacted by privatization. This chapter empirically analyses the impact of a resource boom and of the privatization of the copper mines in Zambia on living standards by using a unique constituency level dataset of 150 constituencies in Zambia over the period 1996-2010 following the Living Conditions and Monitoring Survey years. Using a 2sls fixed effects model approach and controlling for constituency characteristics the results show that the privatization of the copper mines benefited the local economies through improved living standards. Lastly, a causal relationship exists between natural resource extraction and living standards even when there have been changes to the structural relationship between the economy and the mining sector is run privately. Chapter 4 focusses on the effect of copper mining on health outcomes. Mining can be an engine and catalyst for economic growth, but often results in heavy metal releases, that could negatively impact human health. High levels of pollution may cause temporary illness, which in turn may cause lost work hours. Using regression analysis, this chapter analyzed the impact of copper mining on health in Zambia. It further explored changes in health outcomes for constituencies located within 200km to nearest mine as these are the ones to be greatly affected by pollution. Matching just over a decade of repeated cross-section survey data on living conditions in constituencies in Zambia in a 2SLS fixed effects approach, it was observed that an increase in copper mining which led to a copper boom from 2003 induced some changes in health outcomes for constituencies located close to the mining operations after the privatization of the mines. It also finds that the probability of suffering from general sicknesses becomes less likely if a constituency is located close to an open pit mine or in a rural area while it increases if a constituency is located close to an underground mine. The results illustrate that copper mining somehow reduces the prevalence of certain health conditions, for example, anaemia and chest infections. Finally, chapter 5 provides a conclusion for the thesis. Overall, the thesis endeavored to make a little empirical contribution to the literature on natural resources and local economies by establishing the causal effects of natural resource endowments on local economies in a single country at a subnational level using a novel panel dataset.