CDEP-CGEG WORKING PAPER NO. 30

Natural Resource Wealth and Crime: The Role of International Price Shocks and Public Policy

Sebastian Axbard, Anja Benshaul-Tolonen, Jonas Poulsen

Abstract:

An extensive literature highlights the potential detrimental effects of natural resource wealth on social, economic and political outcomes. We study a largely unexplored relationship –  the impact of natural resource wealth on criminal activity. Our empirical strategy exploits price fluctuations in 15 internationally traded minerals to study the impact of mineral wealth on local crime levels in South Africa – leveraging detailed data from 1,084 police precincts over 10 years. In contrast to prior work, we found that increased mineral wealth leads to less crime. An exploration of mechanisms suggest that the effect is due to changes in employment opportunities created by the mining industry. Our results suggest that low international mineral prices can cause surges in crime. To investigate how resilience against such surges can be achieved, we study a government employment guarantee program and show that it was effective in reducing the crime response to international price fluctuations.

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