EFFECTS OF MINERAL DEVELOPMENT ON THE ECONOMY*

Abstract

R. G. Gregory's article on the effects of mineral discoveries on the Australian economy (Australian Journal of Agricultural Economics, August 1976) has attracted much attention. While the partial‐equilibrium nature of his model has enabled it to be absorbed readily, it has the usual theoretical limitations of such analyses. Allowing for general equilibrium repercussions, but still accepting his general assumptions, some of Gregory's conclusions regarding the impact of new mineral discoveries require modification or extension: Although production of goods other than minerals can be expected to decline, the production of some goods in this category may rise; A social gain is still possible even if outputs of other goods do not change; While the price of non‐tradeable goods can be expected to rise, production of non‐tradeables may increase or decrease. We also show the magnified effect of mineral discoveries on the rents of factors specific to minerals, and the squeeze exerted on the rents of factors specific to other tradeables.

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