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How Much Does Natural Resource Extraction Really Diminish National Wealth? The Implications of Discovery - Working Paper 290

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  • Alan Gelb, Kai Kaiser, and Lorena Vinuela
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    Abstract

    The paper considers the process of discovery for subsoil resources, including both hard minerals and hydrocarbons and estimates its magnitude in recent years, as derived from the sum of extraction and changes in proven reserves. Spurred on by technology change and strong market conditions, discovery has been substantial for most minerals. The value of discovered reserves is high relative to the costs of exploration, particularly when low social discount rates are used to value potential production in the future. Discovery is therefore valuable and should be considered as adding to national wealth through increases in proven reserves. Many countries can continue to generate resource rents far longer than indicated by current reserve estimates and this has implications for decisions on how to plan to spend or save rents. With the high response of discovery to prices and technology, environmental constraints (climate change, water) are more likely than the actual exhaustion of resource deposits to limit resource-based development. The divergence between private and social valuation of discoveries may also justify measures taken by countries to encourage exploration, including through the provision of geo-scientific data to increase interest in discovery as well as competition among mining companies. More information is needed on the payoff to such investments, some of which are supported by donors. However, exploration is, of course, only a slice of the resource value chain. Many countries will need to improve management along the entire chain if resource wealth is to benefit their development

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    File URL: http://www.cgdev.org/files/1426040_file_Gelb_Kaiser_Vinuela_extraction_FINAL.pdf
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    Bibliographic Info

    Paper provided by Center for Global Development in its series Working Papers with number 290.

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    Length: 33 pages
    Date of creation: Mar 2012
    Date of revision:
    Handle: RePEc:cgd:wpaper:290

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    Web page: http://www.cgdev.org

    Related research

    Keywords: development; mining; natural resource; resource rich; hydrocarbons; depletion; extractive; wealth measurement.;

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    1. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
    2. Devarajan, Shantayanan & Fisher, Anthony C, 1982. "Exploration and Scarcity," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1279-90, December.
    3. Kirk Hamilton & Giovanni Ruta, 2009. "Wealth Accounting, Exhaustible Resources and Social Welfare," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 42(1), pages 53-64, January.
    4. Kenneth Arrow & Partha Dasgupta & Karl-Göran Mäler, 2003. "Evaluating Projects and Assessing Sustainable Development in Imperfect Economies," Working Papers 2003.109, Fondazione Eni Enrico Mattei.
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    7. Deacon Robert T., 1993. "Taxation, Depletion, and Welfare: A Simulation Study of the U.S. Petroleum Resource," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 159-187, March.
    8. Toman, Michael & Krautkraemer, Jeffrey, 2003. "Fundamental Economics of Depletable Energy Supply," Discussion Papers dp-03-01, Resources For the Future.
    9. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
    10. Adelman, M. A., 1991. "User cost in oil production," Resources and Energy, Elsevier, vol. 13(3), pages 217-240, September.
    11. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
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