The Latin America region is a major producer and exporter of critical minerals such as lithium, cobalt, copper, and nickel. Brazil holds approximately 20% of the world’s nickel reserves, while Chile and Argentina jointly account for one-third of global lithium production. Additionally, Chile and Peru produce 37% of the total global copper supply. These minerals are essential for the transition to a greener economy, particularly in the manufacturing of components for energy storage, batteries, electric vehicles, power tools, and more broadly, low-carbon energy technologies.
Young Kyu Hwang, Àngeles Sánchez Díez, and Roula Inglesi-Lotz examine the relationship between natural resources and potential economic growth. They build on the earlier work of Gylfason (2001), which provides insights into the natural resource curse. This concept explains why some resource-rich countries do not achieve positive economic outcomes. The export of natural resources can lead to an appreciation of the real exchange rate, resulting in the overvaluation of the local currency. Additionally, some governments may engage in rent-seeking behavior, distorting resource allocation and reducing both economic efficiency and social equity. Ultimately, this overreliance on natural wealth can hinder investment in other growth sources or in human capital development.
The authors propose several policies aimed at preventing the natural resource curse and ensuring green growth with a focus on critical minerals. First, governments should shift their economies to become high-value-added exporters. Instead of selling essential minerals as raw materials, these minerals could be used as inputs for producing low-carbon technologies. This transformation would protect countries from external shocks by allowing them to become global manufacturing hubs.To support this dynamic, policies should promote investment in energy infrastructure, innovation, and training in green technologies. Such investments could trigger a spillover effect, enabling the low-carbon tools developed to be applied in various other sectors, thereby accelerating the transition to green growth.
Additionally, reforming the fiscal system is crucial for maintaining a positive fiscal balance in exporting countries. Introducing environment-related taxes and broadening the tax base can reduce economic losses from tax evasion and inefficient collection systems, a challenge that is particularly prevalent in Latin American countries. Furthermore, establishing sovereign wealth funds, such as intergenerational or investment funds, could help to gather additional liquidity and reinvest it in the green transition.
The effects of critical mineral endowments on green economic growth in Latin America – ScienceDirect
