Blessing and curse. The gold boom and local development in Colombia

Abstract

I provide a microeconomic channel for the resource curse using the boom in Colombian gold mining as a case study. Identification strategies exploit trend changes in international gold prices after 2002 and regional gold production capabilities as measured by water supply (the majority of gold mining in Colombia is placer mining and water is important for industrial gold production). I find that the gold boom decreases local unemployment in the short term by 3.5%. However, given the lack of capacity to effectively ban child labor, these economic opportunities are also available for children. My results indicate that, because of the gold boom, the probability that a child works increases by 9.3% and school attendance decreases by 23.9%. Capital accumulation seems to be permanently hurt since the probability that a child is lagging three or more grades behind increases by 9%. These effects are only discernible after 2002. The human capital results can be retrieved from different databases. Furthermore, results are robust to a series of robustness checks (restricting the sample to gold producers and their neighbors, using alternative sets of controls and restricting the sample to non-migrants). Resources are a blessing in the short term but a curse for long term economic growth if human capital is productive.