Extractive Industries, Production Shocks and Criminality: Evidence from a Middle-Income Country
Thursday, November 12, 2015
Riverfront South/Central (Hyatt Regency Miami)
*Names in bold indicate Presenter
Extractive industries are key to development in many countries, accounting for large shares of government revenue and GDP. However, a vast and growing literature links extractive industries to conflicts and war in countries with weak institutions. This study is, to our knowledge, the first to investigate whether extractive industries can cause property and violent crime in a middle-income country. We focus on South Africa, a country with a significant mining industry and high crime levels, similar to Botswana, Brazil, and Mexico. Our empirical strategy exploits time and geographic variation in mining, in addition to fluctuations in international mineral prices, to estimate the effect of mining activity on crime. In contrast to earlier findings on other forms of social conflict, we find that areas endowed with higher levels of natural resources show no increase in crime when a mine opens and in fact have lower crime levels when the mine is active. However, the closure of a mine leads to a large and significant increase in both property and violent crime. Subsequently, we show that the migration flows and income opportunities created by the mining industry are two important channels through which mining affects criminality. The findings illustrate that the volatile nature of the sector can be a threat to social stability and security.