Natural Resource Sectors and Human Development: International and Indonesian Evidence

Abstract

This thesis collects three papers on natural resource sector-led development. The first paper examines the long-term health and education impacts of mining dependence. Exploiting between-country variation in a large international sample, causal effects are identified through instrumental variable estimation. Results show that countries with economies more oriented toward mining on average display poorer health and education outcomes than countries of similar per capita income. Income from sectors other than mining tends to deliver better health and education outcomes. Key channels explaining the lower social productivity of mining sector activity include its impacts on non-mining sectors and institutions. Similar patterns are observed across Indonesian districts, suggesting this is not only a country-level phenomenon. The second paper examines the poverty impacts of the world’s largest modern plantation sector expansion, Indonesian oil palm in the 2000s. The paper combines administrative data on local oil palm acreage at the district level with survey-based estimates of poverty, using an estimation approach in long-differences. Identification is achieved through an instrumental variable strategy exploiting detailed geospatial data on crop-specific agro-climatic suitability. The key finding is that increasing the oil palm share of land in a district by ten percentage points contributes to around a forty percent reduction in its poverty rate. Of the more than 10 million Indonesians lifted from poverty over the 2000s, my most conservative estimate suggests that at least 1.3 million of these people have risen out of poverty due to growth in the oil palm sector. Similar effects are observed for different regions of Indonesia, for industrial and smallholder plantations, and at the province level. Oil palm expansion tends to be followed by a small but sustained boost to the value of agricultural output, manufacturing output, and total district output. The final paper presents three quantitative case studies on the local economic and welfare impacts of rapid natural resource sector expansion in Indonesia. The paper focuses on three districts that have experienced notably large production booms for Indonesia’s three largest primary exports: palm oil (Indragiri Hilir, in Riau), coal (Tapin, in South Kalimantan), and natural gas (in Manokwari, West Papua). Counterfactuals are constructed for each case study district through synthetic control modelling. Results suggest that all three resource booms boosted total economic output and altered the structure of the local economy. Oil palm expansion in Riau raised agricultural, industry, and services output, while coal mining in South Kalimantan reduced agricultural and services output. Oil palm and coal mining booms both appear to have delivered strong poverty reduction. The Tangguh natural gas project in West Papua delivered a massive increase in local economic and industry output, but I find no evidence of any discernible impacts on household welfare and poverty. The three case studies show that natural resource sectors can make important contributions to poverty alleviation. Relative to their size, sectors with more concentrated rents tend to provide less broad-based benefits than diffuse resource sectors using labour more intensively.