Spillovers from extractive industries

Extractive industries form an important part of the economy for many developing
countries, but their impact on growth and welfare remains understudied. With global efforts to
transition to net-zero carbon emissions in the coming decades, understanding the local impacts of
the extractives sector is crucially important for regional economic development policy in the
management of this transition. In this paper we use tax administrative data from South Africa to
examine the local spillovers from mining activities, focusing on wages, firm profitability, and job
creation. Utilizing exogenous changes in international mineral and metals prices, which had a
heterogeneous impact across different local areas depending on the main minerals and metals
being extracted, we find that, in the short term, a general contraction in the mining sector reduces
the number of jobs in related service industries, as well as the wages received by local workers in
those sectors. We also find evidence that a negative shock to the mining sector through vertical
integration will have negative productivity impacts on the tradable sectors (especially
manufacturing).