Chile, copper and resource revenue: A holistic approach to assessing commodity dependence

The first decade of the new millennium has ushered in with it booming commodity prices due mainly to high growth in East Asia. Copper prices in particular have soared 80% between 2001 and 2011, causing Chile, the world's largest copper producer, to reap massive windfalls. This paper provides an assessment of Chile's commodity dependence with a focus on the manner in which current flows of mining revenue promote sustainable development. The first part of the paper suggests Chile's status as a strong commodity producer could be complemented by efforts to achieve a more balanced growth trajectory that would include expansion of domestic demand brought about by rising labor productivity and rising wages and reduced dependence on export demand and foreign savings. We believe such an achievement would greatly promote the fair transfer of resource revenue from exhaustible sources to future generations. In the second part of the paper we provide an empirical assessment of sources and the destination of revenue derived from mineral exports. We focus on usage of revenue flows to government, multinationals in the form of profits and operating expenses, and workers. Our approach is intended to provide a more holistic and meaningful assessment of Chile's commodity dependence than what is normally found in the literature. We conclude that while the Chilean government clearly has provided future generations with revenue in the form of offshore sovereign wealth funds, most private resource revenue flows offshore in the form of remittances and profits to multinationals. There is limited use of private and public funds directed at enhancing domestic demand through productive investment. Published by Elsevier Ltd.