Mining-energy boom and local institutional capacities - the case of Colombia

Abstract

Despite the burgeoning discussion about how the mining-energy sector affects local communities, the roles of local institutions remain understudied as one of the key factors to understand the impact of mining booms on local development. Literature has recently emerged analyzing the role institutions play and finds that natural resource booms can be a curse or a blessing. This article seeks to answer the research question: Do oil and coal-producing municipalities have better institutional capacities? Our research analyzes the incidence that two extractive industries – oil and coal – have on local institutional capacities in Colombia. We use two methodological approaches to study this relationship at a municipality level over the period 2011–2019: a panel data model and a cross sectional exploratory-confirmatory spatial data analysis. The panel estimation results show that municipalities with oil and coal activity have a higher fiscal performance index suggesting that producer municipalities have stronger institutional capacities than non-producer municipalities. However, due to the local development dynamics in each sector's territories, the capacities of coal and oil producing municipalities differ. The spatial analysis reveals spillover effects in the production of oil. Public policy recommendations are made based on the findings.