The Local Impact of Mining on Poverty and Inequality: Evidence from the Commodity Boom in Peru

This paper studies the impact of mining activity on socioeconomic outcomes in local communities in Peru. In the 1990s and 2000s, the value of Peruvian mining exports grew by 15times; and since the early 2000s, one-half of fiscal revenues from mining have been devolved to local governments. Has this boom benefitted people in local communities? Using the district-level “poverty map” of 2007 (the latest available with accurate data on consumption, poverty, and inequality) together with district-level data on mining production and fiscal transfers to local governments, we present some evidence to answer this question. We find that mining districts have larger average consumption per capita and lower poverty rates than otherwise similar districts. These positive impacts, however, decrease drastically with administrative and geographic distance from mining centers. Moreover, consumption inequality within mining districts is higher than in comparable nonproducing districts. This dual effect of mining is accounted for by, first, the better educated immigrants required and attracted by mining activity and, second, the jobs that some community natives obtain in industries and services related to mining. The inequalizing impact of mining, both across and within districts, may help explain the social discontent with mining in Peru, despite its enormous revenues. An area for future research highlighted in the paper regards the usefulness of fiscal transfers to local governments (the Mining Canon), a key component of the fiscal decentralization reform of 2002. We find neither a detrimental nor a beneficial effect from the Mining Canon in Peru. Whether this is explained by our early measurement of results (5years into the decentralization program) or by the lack of implementation capacity of local governments remains to be answered.