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Natural resource use conflict: gold mining in tropical rainforest in Ghana

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  • AKPALU, WISDOM
  • PARKS, PETER J.

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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Suggested Citation

  • Akpalu, Wisdom & Parks, Peter J., 2007. "Natural resource use conflict: gold mining in tropical rainforest in Ghana," Environment and Development Economics, Cambridge University Press, vol. 12(01), pages 55-72, February.
  • Handle: RePEc:cup:endeec:v:12:y:2007:i:01:p:55-72_00
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    References listed on IDEAS

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    1. Camille Bann, 1997. "An Economic Analysis of Tropical Forest Land Use Options, Ratanakiri Province, Cambodia," EEPSEA Research Report rr1997112, Economy and Environment Program for Southeast Asia (EEPSEA), revised Nov 1997.
    2. Löfgren, Åsa, 2003. "Habit Formation in the Environmental Quality: Dynamic Optimal Environmental Taxation," Working Papers in Economics 92, University of Gothenburg, Department of Economics.
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    4. Jeffrey A. Krautkraemer, 1988. "The Cut-Off Grade and the Theory of Extraction," Canadian Journal of Economics, Canadian Economics Association, vol. 21(1), pages 146-160, February.
    5. Fraser, Rob W., 1999. "An analysis of the Western Australian gold royalty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(1), March.
    6. Simpson, R David & Sedjo, Roger A & Reid, John W, 1996. "Valuing Biodiversity for Use in Pharmaceutical Research," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 163-185, February.
    7. James Benhin & Edward Barbier, 2004. "Structural Adjustment Programme, Deforestation and Biodiversity Loss in Ghana," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(3), pages 337-366, March.
    8. Doherty, Neil A & Posey, Lisa Lipowski, 1997. "Availability Crises in Insurance Markets: Optimal Contracts with Asymmetric Information and Capacity Constraints," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 55-80, October.
    9. Ehui, Simeon K. & Hertel, Thomas W. & Preckel, Paul V., 1990. "Forest resource depletion, soil dynamics, and agricultural productivity in the tropics," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 136-154, March.
    10. Addy, Samuel N, 1998. "Ghana: revival of the mineral sector," Resources Policy, Elsevier, vol. 24(4), pages 229-239, December.
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    Citations

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    Cited by:

    1. Wisdom Akpalu & Worku T. Bitew, 2017. "Externalities and foreign capital in aquaculture production in developing countries," WIDER Working Paper Series 001, World Institute for Development Economic Research (UNU-WIDER).
    2. repec:eee:ecolec:v:142:y:2017:i:c:p:104-112 is not listed on IDEAS
    3. Akpalu, Wisdom & Anders, Ekbom, 2010. "Bio-economics of Conservation Agriculture and Soil Carbon Sequestration in Developing Countries," Working Papers in Economics 431, University of Gothenburg, Department of Economics.
    4. Elaine Lawson & Gloria Bentil, 2014. "Shifting sands: changes in community perceptions of mining in Ghana," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 16(1), pages 217-238, February.
    5. Akpalu, Wisdom & Vondolia, Godwin K., 2012. "Bioeconomic model of spatial fishery management in developing countries," Environment and Development Economics, Cambridge University Press, vol. 17(02), pages 145-161, April.
    6. Ousman Gajigo & Emelly Mutambatsere & Guirane Samba Ndiaye, 2012. "Working Paper 147 - Gold Mining in Africa-Maximizing Economic Returns for Countries," Working Paper Series 378, African Development Bank.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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