Natural Resource use Conflict: Gold Mining in Tropical Rainforest in Ghana

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Natural Resource use Conflict: Gold Mining in Tropical Rainforest in Ghana

Author Info

Akpalu, Wisdom () (Department of Economics, School of Economics and Commercial Law, Göteborg University)
Parks, Peter J. () (Department of Agricultural Economics and Marketing, Cook College,)

Abstract

Gold is frequently mined in rainforests that can provide either gold or forest benefits, but not both. This conflict in resource use occurs in Ghana, a developing country in the tropics where the capital needed for mining is obtained from foreign direct investment (FDI). We use a dynamic model to show that an ad valorem severance tax on gross revenue can be used to internalize environmental opportunity costs. The optimal tax must equal the ratio of marginal benefits from forest use to marginal benefits from gold extraction. Over time, this tax must change at a rate equal to the difference between the discount rate and the rate of change in the price of gold. Empirical results suggest that the 3 percent tax rate currently used in Ghana is too low to fully represent the external cost of extraction (i.e., lost forest benefits).

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Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number 182.

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Length: 37 pages
Date of creation: 28 Oct 2005
Date of revision:
Handle: RePEc:hhs:gunwpe:0182

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

This paper has been announced in the following NEP Reports:

NEP-AFR-2005-11-05 (Africa)
NEP-ALL-2005-11-05 (All new papers)
NEP-ENV-2005-11-05 (Environmental Economics)
NEP-PBE-2005-11-05 (Public Economics)

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