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How Much Does Natural Resource Extraction Really Diminish National Wealth? The Implications of Discovery - Working Paper 290

3/14/12
Alan Gelb, Kai Kaiser, and Lorena Viñuela
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Alan Gelb, Kai Kaiser, and Lorena Viñuela look into the process of discovery for mineral resources and estimate its magnitude. They find that the value of discovered reserves is high relative to the costs of exploration and that many countries can continue to generate resource rents far longer than indicated by current reserve estimates. Environmental constraints are more likely than the actual exhaustion of deposits to limit resource-based development.

The authors point out that the private value of discoveries to companies is sometimes different than the social value to the country overall. In such cases, measures to encourage exploration may be justified, including the provision of geo-scientific data to lower the barriers of entry. More information is needed on the payoff to such investments, some of which are supported by donors.

Exploration is, of course, only a slice of the resource value chain. Many countries will need to improve management along the entire chain if resource wealth is to benefit their development.