Pelzl, P. and Poelhekke, S. (2021). Good mine, bad mine: Natural resource heterogeneity and Dutch disease in Indonesia Journal of International Economics, 131:1--21.
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Affiliated authorsPaul Pelzl, Steven Poelhekke
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Publication year2021
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JournalJournal of International Economics
We analyze the local effect of exogenous shocks to the value of mineral deposits on a panel of manufacturing plants in Indonesia. We introduce heterogeneity in natural resource extraction methods, which helps to explain the mixed evidence found in the {\textquoteleft}Dutch disease{\textquoteright} literature. In districts where mineral extraction is relatively capital intensive, mining booms cause virtually no upward pressure on manufacturing wages, and both producers of more heavily traded and relatively less-traded manufacturing goods benefit from mining booms in terms of employment. In contrast, labor-intensive mining booms drive up local wages such that heavily traded goods producers respond by reducing employment.