A Move South

Author:Rabah Arezki, Frederick van der Ploeg, and Frederik Toscani
SUMMARY

A growing number of large resource finds are in the developing world, reflecting growing openness in their economies

 
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A Move South Finance & Development, March 2016, Vol. 53, No. 1

Rabah Arezki, Frederick van der Ploeg, and Frederik Toscani

A growing number of large resource finds are in the developing world, reflecting growing openness in their economies

High-income countries have long been the main users and suppliers of natural resources.­

It could be bauxite, copper, and iron ore across much of Europe—not to mention coal, lead, mercury, zinc, and oil and natural gas. English and Belgian coal deposits fueled the Industrial Revolution.­

When the United States achieved independence in the late 18th century it was widely thought of as a country with “an abundance of land but virtually no mining potential.” (O’Toole, 1997). But a century later, after the rebellious colonies had developed into a stable country, the United States not only became a high-income country in today’s parlance but it overtook Europe to become the world’s major resource producer.­

Today, though, the high-income-country share of global resource deposits has fallen, driven by growth in discoveries in other, less-developed parts of the world.­

We document a major shift in resource exploration and extraction from high-income regions, or the “North,” to emerging market and developing economies, or the “South.” This shift in resource discovery and extraction is associated with efforts in emerging market and developing economies to open up to foreign investment and/or improve their institutions— including through more stable government and stronger rule of law. That North-South shift mirrors on a global scale what happened in the United States after independence.­

The new policies that have sparked a move south in global resource exploration and extraction operate over and above other forces that affect natural resource exploitation, such as rising global demand, especially from emerging markets, and depletion of deposits in the North. That shift has important implications both for the welfare of individual countries and for our global understanding of the balance of forces shaping commodity markets. Moreover, the increasing number of finds in developing economies puts to rest concerns that the world will soon run out of mineral and oil resources.­

North to South shiftThe data on known reserves of subsoil assets suggest that developing economies have much more oil, metals, and minerals to discover. There is an estimated $130,000 worth of known subsoil assets beneath the average square kilometer of advanced and emerging market Organisation for Economic Co-operation and Development (OECD) member countries. That is much more than the roughly $25,000 in known assets in Africa (Collier, 2010; McKinsey Global Institute, 2013).­

But it is unlikely that such differences in asset value can be explained by variations in geological formations between advanced and developing economies. It is much more likely that the difference is largely the result of more exploration in the OECD countries. The amount of resources a country knows it has and can get out of the ground changes as investment in exploration finds new deposits—and as technology increases the amount of deposits that can be extracted.­

That there are many deposits yet to be found in emerging market and developing economies seems to be borne out by developments over the past few decades. We have developed a data set that covers major discoveries between 1950 and 2012 in 128 countries for 33 natural resources—including oil, metal ores, and minerals. While the...

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