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Why abundant coal may have ‘cursed’ the Appalachian economy

Is coal country suffering from what economists call the 'resource curse'?

As Chico Harlan writes, the economy of the central Appalachian region has been tied to the highs and lows of the coal industry for decades.

Harlan’s piece raises the question of whether West Virginia miners are better off moving away from the troubled local coal mining industry — and certainly some are trying. But is West Virginia’s economy better off moving away from one of its most valuable natural resources? In economics, there’s a fairly sizable body of research on the idea of a “resource curse” — that is, the theory that countries blessed with abundant natural resources are often cursed with higher poverty levels and lower growth. Experts disagree about the extent of the causal link between resource booms and poverty.

Here’s a look at poverty levels in Appalachia from 2008-2012, via the Appalachian Regional Commission. Much of the areas with the highest levels of poverty and lower incomes are clustered around the coal-heavy regions of central Appalachia:

In 2013, scholars at Ohio State University looked at the issue of whether the Appalachian coal country suffers from a resource curse — the paper was updated from a previous version, as the Harvard Kennedy School Shorenstein Center points out.

Prior to 2000, the Ohio State authors found, higher rates of poverty were associated with Appalachian coal mining. After 2000, however, the authors found no statistical relationship between poverty and coal employment. Outside of Appalachia, the study’s authors found, coal mining is generally correlated with lower poverty, which suggests there may have been something specific about Appalachia’s coal industry that hurt its overall economy.

A July 2011 report from the West Virginia Center on Budget & Policy argued that the state’s dependence on energy has lead to painful boom and bust cycles, particularly in mining areas. Here’s a look at the volatility of personal income in West Virginia:

Another recent paper, by Stratford Douglas of West Virginia University and Annie Walker of the University of Colorado at Denver, looked at the Appalachian coal industry’s economic effects from 1970-2010 and comes to a slightly different conclusion. “The coal industry provides employment opportunities and income in abundance during good times, but those boom-time opportunities come at the price of lower of overall long-term growth,” the authors found.

The paper noted that, not surprisingly, Appalachia’s incomes have been tied rather directly to the price of coal. Note the jump in income in Appalachian coal and non-coal counties during the high energy price era of the 1970s:

The authors also found that educational attainment levels, while low in Appalachia overall, are also hurt by the presence of coal. The researchers added, however, that the effect is a relatively small contributor to what they identified as the area’s resource curse:

The authors suggested that the likelihood of employment in the region’s coal industry may push local workers away from getting a better education, and discourage efforts to bring other industries to the area. That effect can help contribute to lower economic growth. Specifically, the authors added: “Our best estimates indicate that an increase of 0.5 units in the ratio of coal revenues to personal income in a county is associated with a 0.7 percentage point decrease in income  growth rates.”

“No doubt, coal mining provides opportunities for relatively high-wage employment in the region, but its effect on prosperity appears to be strongly negative in the long run,” the authors said.