The increase in the international price of commodities after the international financial crisis in 2008 produced a gold rush in the Colombian economy, making legal and illegal mining a very profitable and attractive business. The increase in the illegal exploitation of metals like gold has exacerbated violence in municipalities with an abundance of such minerals. Gold is believed to be a new engine in the Colombian conflict. This paper documents the phenomenon and quantifies the causal impact that the gold boom has had on indicators of violence such as homicides, forced displacement and massacres. We use the location of national parks, indigenous reserves and geochemical anomalies associated with the presence of gold mines as instruments for illegal mining in order to disentangle the causal effect of illegal mining on violence. By law, it is very difficult to get licenses for the extraction of gold in parks and indigenous reserves, and this might be a factor increasing the prevalence of illegal mining activities in municipalities with these features. In order to have time variation in our instruments, we interact geographical features associated with the presence of gold and illegal gold mining (which vary only at the municipal level) with the international price of gold. Our estimates indicate that the rise of illegal gold mining has caused a statistically significant increase in violence, as measured with the homicide rate and the victims of massacres. However, we do not find a significant causal effect of illegal gold mining on forced displacement. Our interpretation is that the increase in the profitability of illegal mining activities has sparked a dispute over territorial control between illegal armed groups in order to monopolize the extraction of the precious minerals. Nevertheless, illegal mining is a labor intensive activity, and this may have counteracted the incentives of illegal armed groups to displace local populations from their land.
“Heavy Metals. Hard Currencies.” The Gold & Silver Speculator, June 13, 2012, http://www.danielstrading.com/advice/dt/gold-silver-speculator/archives/The-Gold-and-Silver-Speculator_2012-06-13.pdf.
Baur and McDermott (2010) find evidence that gold represents a strong safe investment during the recent financial crisis.
Analysis from U.S. Department of Labor: Bureau of Labor Statistics – Beyond the Numbers – Gold Prices During and After the Great Recession, available at: http://www.bls.gov/opub/btn/volume-2/gold-prices-during-and-after-the-great-recession.htm.
Interview with former Minister of Mines, available at: http://www.portafolio.co/economia/objetivo-convertir-al-pais-potencia-minero-energetica.
See, for example, reports in La SillaVacía, available at: http://www.lasillavacia.com/historia/viaje-al-corazon-de-la-mineria-ilegal-en-guainia-37128 and at: http://www.lasillavacia.com/historia/los-picapiedra-de-las-farc-en-el-mapa-de-la-mineria-ilegal-36691.
The main exception is the work of Giraldo and Muñoz (2012).
Aljazeera, “Colombia’s Gold Rush” http://www.aljazeera.com/programmes/faultlines/2011/07/2011757127575176.html and Gatopardo, “El Oro es la Nueva Cocaína”, available at: http://www.gatopardo.com/ReportajesGP.php?R=114.
See Mejía and Restrepo (2012).
Dube and Vargas (2013); Rigterink(2011), among others focus on total production.
All our results are robust to clustering the errors at the municipality level and are available from the authors upon request.
Although the F-statistic reported in Table 3 lies between 2.3 and 9.1 (below the rule of thumb of 10), the p-values of the F-statistics all pass the test at reasonable significance levels.
We acknowledge that the magnitude of the difference between the OLS estimates and the IV estimates is large. However, our argument is that given the described characteristics of our instruments, our IV estimates do correct for the endogeneity present in the OLS estimates. This is precisely the argument behind the Hausman test for endogeneity, which is available from the authors upon request.
Although we do not show these results in the paper, they are available from the authors upon request.
We thank the editors and two anonymous referees for very thorough comments and suggestions, as well as Tomás González and Andrés Sarmiento, from the Ministry of Mines and Energy, for providing access to the information necessary for this research. Additionally, we acknowledge funding from Colombia’s Ministry of National Defense. Any errors are the sole responsibility of the authors.
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