Is Mining Income Sustainable Income in Developing Countries?

I attempt to measure whether the mining sector contributes to the achievement of sustainable development or detracts from that goal in a number of developing countries. Most economic interpretations of sustainability regard sustainable development as development that provides for a non-decreasing level of welfare in the long-run. Treating income per capita as an imperfect proxy of welfare we can measure whether increases in mining sector income lead to sustainable increases in income despite the exhaustible nature of mineral deposits. This is a more encompassing criterion than the conventional Solow-Hartwick criterion which sets necessary conditions for the achievement of a similar definition of sustainability. A seven variable vector autoregression model (VAR) is estimated for each of nineteen non-OPEC developing countries with large mining sectors. The variables are mining GDP, non-mining GDP, net foreign factor payments, imports, manufactured capital, labor, and an index of human capital. Other aspects of the natural environment are treated as unobserved variables that may systematically affect parameter estimates or affect the random error terms. Using the impulse response functions, I determine the long-run multiplier of mining income on GNP. Information is also provided on the multipliers of the mining sector on manufactured and human capital accumulation which could be used in a test of the Solow-Hartwick weak sustainability criterion or used in a more comprehensive assessment of the effects of mining on development.