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

  • AKPALU, WISDOM
  • PARKS, PETER J.

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. Furthermore, the tax should increase (decrease) when adjusted net return on all other assets in the economy is higher (lower) than the growth in the price of gold. Empirical results suggest that the 3 per cent 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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Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 12 (2007)
Issue (Month): 01 (February)
Pages: 55-72

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Handle: RePEc:cup:endeec:v:12:y:2007:i:01:p:55-72_00
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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. Tsikata, Fui S., 1997. "The vicissitudes of mineral policy in Ghana," Resources Policy, Elsevier, vol. 23(1-2), pages 9-14, June.
  3. 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.
  4. Addy, Samuel N, 1998. "Ghana: revival of the mineral sector," Resources Policy, Elsevier, vol. 24(4), pages 229-239, December.
  5. Jeffrey A. Krautkraemer, 1988. "The Cut-Off Grade and the Theory of Extraction," Canadian Journal of Economics, Canadian Economics Association, vol. 21(1), pages 146-60, February.
  6. James Benhin & Edward Barbier, 2004. "Structural Adjustment Programme, Deforestation and Biodiversity Loss in Ghana," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(3), pages 337-366, March.
  7. 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.
  8. 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.
  9. 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 163-85, February.
  10. 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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