Attracting mining investments: the relationship between natural endowments and public policies

Abstract

Mining jurisdictions avid to attract international investments to find and exploit their mineral deposits contend for international capitals. This led to policymakers, analysts, and companies to think about the factors affecting the competitiveness of mining districts. The traditional paradigm states that the capacity of a country or jurisdiction to attract investments and develop its local industry is a function exclusively of the quantity and quality of the ore deposits within its territory. On the other hand, the alternative view suggests that the previous conception is incomplete, because companies not only look for a good geologic potential but also for a favorable investment climate (Tilton 1992). Through cross-country econometric models covering the years 1996 to 2014, this work supports the alternative paradigm of mining competitiveness and tries to contribute to a better understanding of the relationship between the geological potential and the investment climate when determining the attraction of mining investments. The study concludes that, in order to develop a local mining industry, a country should have a wealthy natural endowment, but also it must offer a good investment climate. In addition, it shows that both variables are related through a multiplicative effect, but once public policies and other contextual variables reach certain reasonable levels (the “investment climate threshold”), jurisdictions compete almost exclusively based on its natural endowment. These results have significant implications for the implementation of public policies, especially in periods when mining contribution to social welfare is under scrutiny.