Does the Acquisition of Mines Benefit Resource-Importing Countries?

Using a simple two-period model, this paper examines the effects of the acquisition of mines/resources by a final goods producer located in a resource-importing country on resource prices in both the first (the present) and second (the future) periods, profits of firms, and welfare. We find that an increase in the mines owned by a final goods producer can increase the resource price in the first period and/or, interestingly, the second period. The strategic behavior of a resource-extracting firm located in a resource-exporting country produces this result. Whether the resource price increases in either period depends on the demand structure for the final goods and the resource supply condition of the final goods producer which owns the mines in the second period. We also consider three extended situations: joint exploration, entry of speculators, and the case of a non-committed investment.