Mining (Peru)

From a thought provoking and controversial paper on mining in Peru by Loayza, Mier y Teran, & Rigolini: 

Mining activity has had a positive impact on local communities. Mining has brought higher levels of average income, lower poverty, fewer households with basic necessities uncovered, and lower illiteracy rates. The high level of disaggregation of our analysis, and the various checks we perform, indicate that these effects can be interpreted causally. Why, then, is mining creating so much discontent and conflict?

The title of the paper is "Poverty, Inequality, and the Local Natural Resource Curse." 

More from the conclusions:

Our analysis highlights several aspects of mining that may counteract its benefits, and which may be at the source of the observed societal tensions. First, the positive impact of mining activity appears to differ between producing districts, and their neighbors. Our analysis consistently points out that districts where the mines are located have substantially better socioeconomic outcomes than their neighbors do. This is the case even with respect to districts located in the same province, which in principle should also strongly benefit from mining through positive spillovers and generous transfers through the Canon. Second, mining is not only generating higher inequalities across districts (with producing districts benefiting the most), but is also generating an increase in district-level inequality that extends beyond producing districts, and reaches their non-producing neighbors. Not everybody is thus benefiting as much from mining. Finally, despite their generosity, and reflecting a trend that is emerging in many countries (Caselli and Michaels, 2009), the redistributive arrangements that have been put in place to share the revenues from mining with local communities have had only a limited impact on social outcomes, increasing average expenditures but having a weaker impact on poverty alleviation.

There could be at least a couple of ways to look at inequality as a consequence of mining: 1) as something that is perceived as repugnant, which has been examined in different contexts by Alvin Roth in his paper "Repugnance and constrains on markets," or 2) as something that is economically inefficient, which is probably a weaker interpretation. Both interpretation can be colored by the (colonial) history of mining which in Latin America, for example, brings unpleasant memories. 

When diamonds were discovered in Botswana Seretse Khama went around the country meeting local chiefs and leaders, and convinced them that the revenues where going to benefit all regions of the country evenly. For the most part he fulfilled that promised transparently and effectively - good governance was crucial. He was probably aware of possible "moral constrains" to mining and mineral markets. Botswana is seen as a relatively successful case of mining by many analysts.