The effects of critical mineral endowments on green economic growth in Latin America

Abstract

In the context of global low-carbon energy transition for addressing the climate crisis and global warming, soaring demand for critical minerals—essential inputs for most clean energy technologies—is expected in the coming decades. However, extracting critical minerals from the mine might have significant negative impacts on environmental sustainability and the socioeconomic well-being of the citizens where such activities take place. The paramount importance of critical minerals for global net-zero goals and their controversy on sustainable development goals motivated us to investigate the effects of critical minerals on green growth in 10 mineral-rich Latin American countries from 2000 to 2020. Firstly, the effect of critical minerals on green growth is analyzed in both disaggregated and aggregated terms. Subsequently, the moderation effect of institutional quality is examined on the nexus between critical minerals and green growth. After which, the non-linear effect of critical minerals on green growth is analyzed, conditioned on the values of five threshold variables using panel fixed-effect threshold regression. Lastly, the primary channels by which critical minerals affect green growth are identified using panel mediation analysis. The findings of this study are highlighted as follows: In aggregate terms, critical mineral contributes to increasing green growth, but its effect depends largely on the type of each critical mineral. When combined with critical minerals, the moderation effect of institutions on green economic growth is ambiguous. The effect of critical minerals varies significantly and shows non-linearity depending on the values of each threshold variable. Critical minerals influence green growth through five channels: exchange rate, renewable energy share in electricity capacity, fossil fuel dependency, government debt, and economic complexity.