Natural resources, (Mis)governance, and the lack of diversification in mining regions: A reconsideration of the Dutch disease at a local level

Abstract

This paper aims to refine the understanding of the resource movement effect of the Dutch disease at a local level by (1) broadening the focus to include access to natural resources and (2) considering the local role of institutions as a channel for this effect. We propose an expanded theoretical approach to evolutionary economic geography on interpath dynamics, considering the role of local institutions in access to scarce assets by integrating the conceptualization of governance structures provided by transaction cost economics. This proposed framework is applied to a case study of Calama, located within the hyper-arid Atacama Desert in the Antofagasta region of northern Chile. The case demonstrates how local inequities in access to freshwater increased permanently due to the Chilean 1981 Water Code in correlation with a temporal copper price super cycle. The results reveal how the mining sector and indigenous associations concentrated access to water rights originally inscribed in irrigation canals by small farmers through a market governance structure, constraining economic diversification through negative interpath dynamics. This research denotes the importance of considering institutional bottom-up approaches to overcome resource dependency.