Natural Resources and Local Economic Development: Evidence from a Peruvian Gold Mine

This paper uses the case of Yanacocha, a large gold mine in Peru, to examine the link between natural resources and local economic development. We find evidence of a positive and sizeable effect of the mine on real income, household consumption and poverty reduction. The effects are driven by the mine's demand of local inputs, not by the expansion of local public spending or by compensating differentials for negative spillovers. Using a spatial general equilibrium model, we interpret these results as evidence of economic gains generated by the mine's backward linkages.