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Acquisition of Mines by Resource-importing Firms and Distribution of Profits from Resource Extraction

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  • HIGASHIDA Keisaku

Abstract

This paper examines the welfare effect of the acquisition of mines by firms in resource-importing countries. In particular, we focus on the distribution of profits from resource extraction between exporting and importing countries. We consider one resource-extracting firm, which is located in a resource-exporting country, and two resource-importing firms, which are located in resource-importing countries. We demonstrate that, when a resource-importing country buys the interests of mines from the resource-extracting firm, the welfare of the resource-exporting country as well as that of resource-importing countries increases. This is because the insufficient supply of resource is mitigated. Subsidy by the government of a resource-importing country encourages the acquisition of mines by the resource-importing firm of the country. However, a part of the subsidy shifts from the resource-importing firm to the resource-exporting country through a price increase of interests. Thus, the welfare of the resource-importing country may decrease. We also consider the case in which resource-importing firms explore new mines in their own countries.

Suggested Citation

  • HIGASHIDA Keisaku, 2013. "Acquisition of Mines by Resource-importing Firms and Distribution of Profits from Resource Extraction," Discussion papers 13074, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:13074
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    References listed on IDEAS

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    1. Sadorsky, Perry A., 1992. "Industry size and 'destructive competition' in cournot oligopoly models of exhaustible resource exploration and extraction," Resources and Energy, Elsevier, vol. 14(3), pages 249-257, September.
    2. Stephen Polasky, 1996. "Exploration and Extraction in a Duopoly-Exhaustible Resource Market," Canadian Journal of Economics, Canadian Economics Association, vol. 29(2), pages 473-492, May.
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