Working Paper: CEPR ID: DP15271
Authors: Paul Pelzl; Steven Poelhekke
Abstract: We analyze the local effect of exogenous shocks to the value of mineral deposits on a panel of manufacturing plants in Indonesia. We introduce heterogeneity in natural resource extraction methods, which helps to explain the mixed evidence found in the `Dutch disease' literature. In districts where mineral extraction is relatively capital intensive, mining booms cause virtually no upward pressure on manufacturing wages, and both producers of more heavily traded and relatively less-traded manufacturing goods benefit from mining booms in terms of employment. In contrast, labor-intensive mining booms drive up local wages such that heavily traded goods producers respond by reducing employment.
Keywords: Dutch disease; Traded sector; Natural resources; Mining; Labor intensity; Indonesia
JEL Codes: F00; L16; L60; L72; O12; O13; Q30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mining boom (Q33) | Increase in plant-level employment (J23) |
| Mining boom (capital-intensive) (L72) | Increase in plant-level employment (J23) |
| Mining boom (labor-intensive) (L72) | Decrease in manufacturing employment (O14) |
| Labor-intensive mining (L72) | Increased local wages (J39) |
| Increased local wages (J39) | Decrease in manufacturing employment (heavily traded goods) (F66) |
| Mining boom (capital-intensive) (L72) | No significant upward pressure on local wages (F66) |
| Labor-intensive mining (L72) | Job cuts in heavily traded goods production (F66) |