Do mining activities foster regional development? Evidence from Latin America in a spatial econometric framework

Against the backdrop of steadily increasing global raw material demand, the socio-economic implications of metal ore extraction in developing countries are of major interest in academic and policy debates. This work investigates whether mining activities relate to the economic performance of mining regions and their surrounding areas. Usually, subnational impact assessments of mining activities are conducted in the form of qualitative in-field case studies and focus on a smaller sample of mining properties and regions. In contrast, we exploit a panel of 32 Mexican, 24 Peruvian and 16 Chilean regions over the period 2008 - 2015 and, in doing so, relate mine-specific data on extraction intensity to regional economic impacts. The study employs a Spatial Durbin Model (SDM) with heteroskedastic errors to provide a flexible econometric framework to measure the impact of natural resource extraction. The results suggest that mining intensity does not significantly affect regional economic growth in both short-run and medium-run growth models. Popular arguments of the mining industry that the extractive sector would trigger positive impulses for regional economic development cannot be verified. Rather, the findings support narratives that mining regions do not benefit from their wealth in natural resources due to low labour intensity, loose links to local suppliers and profit outflows.