The Political Economy of Mining Rent Sharing: Is Government Effectiveness Really Costly?

ABSTRACT This paper builds on the work of a previous study to modelling the political economy factors that influence government take over the lifespan of mining projects. We extend the political economy model by incorporating the opportunity costs of preferences for side payments, thereby enhancing its predictive power to explain government take. Preferences for side payments are likely to exist only in contexts where government effectiveness is limited and corruption is rampant. Our empirical evidence using data on de jure government take in copper mining projects in Africa and Latin America confirms the theoretical predictions by the revisited political economy model. Specifically, we find that government effectiveness is a key driving factor with a two‐dimensional linkage. As government effectiveness improves, countries with high level of corruption experience lower government take, while those with high transparency and strong political regimes experience higher government take.