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Natural resource use conflict: gold mining in tropical rainforest in Ghana

Published online by Cambridge University Press:  29 January 2007

WISDOM AKPALU  and
PETER J. PARKS
WISDOM AKPALU
Affiliation:
Department of Economics, Gothenburg University, Box 640, SE 405 30, Gothenburg, Sweden. Tel: +46 31 773 4122. Fax: +46 31 773 4154. Email: wisdom.akpalu@economics.gu.se
PETER J. PARKS
Affiliation:
Department of Agricultural, Food and Resource Economics, Cook College, Rutgers University, New Brunswick, NJ.
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Abstract

Gold is frequently mined in rainforests that can provide either gold or forest benefits, but not both. This conflict in resource use occurs in Ghana, a developing country in the tropics where the capital needed for mining is obtained from foreign direct investment (FDI). We use a dynamic model to show that an ad valorem severance tax on gross revenue can be used to internalize environmental opportunity costs. The optimal tax must equal the ratio of marginal benefits from forest use to marginal benefits from gold extraction. Furthermore, the tax should increase (decrease) when adjusted net return on all other assets in the economy is higher (lower) than the growth in the price of gold. Empirical results suggest that the 3 per cent tax rate currently used in Ghana is too low to fully represent the external cost of extraction (i.e., lost forest benefits).

Type
Research Article
Information
Environment and Development Economics , Volume 12 , Issue 1 , February 2007 , pp. 55 - 72
Copyright
© 2007 Cambridge University Press

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Footnotes

The authors are indebted to Karl-Göran Mäler, Anne-Sophie Crepin, Katarina Nordblom, Olof Johansson-Stenman, Thomas Sterner, Åsa Löfgren, Mads Greaker, and three anonymous referees for their invaluable comments. We would also like to thank Gunnar Köhlin for drawing our attention to the problem. The usual disclaimer applies. Financial support from Sida/SAREC is greatly acknowledged.