5 - Resources and Local Public Goods Provision

Summary

Chapter 5 analyzes how mineral resources affect local provision of public goods. Through case studies and statistical analysis, it shows that local governments in resource-rich regions tend to spend less on human capital-developing public goods, including education and health care, due to the diminished demand for labor, the myopic decision-making of both citizens and officials, and the shedding of government responsibilities onto mining enterprises. On the other hand, wary of the tension between mining industries and local citizens and driven by the pressure to preserve social stability, the local governments in resource-rich regions spend more fiscal revenue on social security benefits for disadvantaged citizens. The redistribution of the resource wealth from resource capital to labor partially compensates for the latter’s welfare losses. Overall, while resource-rich regions have weak incentives to invest in human capital development, they do spend more on redistributive policies to redress popular grievance and ameliorate resource-triggered social conflicts.