Acquisition of Mines by Resource-importing Firms and Distribution of Profits from Resource Extraction

This paper examines the welfare effect of the acquisition of mines by firms in resource-importing countries. In particular, we focus on the distribution of profits from resource extraction between exporting and importing countries. We consider one resource-extracting firm, which is located in a resource-exporting country, and two resource-importing firms, which are located in resource-importing countries. We demonstrate that, when a resource-importing country buys the interests of mines from the resource-extracting firm, the welfare of the resource-exporting country as well as that of resource-importing countries increases. This is because the insufficient supply of resource is mitigated. Subsidy by the government of a resource-importing country encourages the acquisition of mines by the resource-importing firm of the country. However, a part of the subsidy shifts from the resource-importing firm to the resource-exporting country through a price increase of interests. Thus, the welfare of the resource-importing country may decrease. We also consider the case in which resource-importing firms explore new mines in their own countries.