Social conflict in rural regions and firm ownership: evidence from the mining sector in Latin America

Abstract

Using firm-level data for five countries in Latin America we find a negative and statistically significant link between social conflict in rural areas and ownership of mines. This result suggests that the social conflict around mining projects can affect strategic firm behavior intended to diversify risk in the face of social, political and financial pressures. It constitutes evidence that the costs of social conflict can be considered a serious challenge for firms and diverges from the literature which has generally viewed these costs as relatively unimportant to investment decisions. We apply broad sensitivity tests and find that this is robust. Our results also hold to a formal test of changes in specification.