Growth of Copper Production: Determinants and Empirical Evidence

Abstract

From the 1950s to 1980, the copper mining industry exhibited a phenomenal growth rate. However, beginning in the early 1980s through 1997, growth rate turned negative without any sign of reversal. In order to restore the important role the industry used to play in the economy, policy makers, and decision makers must understand the factors responsible for the rapid growth from the 1950s until 1980 and the equally rapid decline during the 1980s and the 1990s.

Growth of the copper mining industry is examined within the framework of a production function to identify the determinants of growth and their roles. The explanatory variables of growth are: copper resources, risk capital or investments, development in the world’s copper market, technology, human capital in mining, and domestic social, legal, and political environment. Except for copper resources, which has been supportive of positive growth, all the variables have components that supported the growth of the copper mining industry during the 1950s-1980s period and contributed to its decline thereafter.

Availability of foreign capital, introduction of bulk mining technology, favorable copper prices and demand, and a conducive domestic social, political, and legal environment were responsible for the impressive growth experienced during the period from the 1950s to 1980. On the other hand, lack of foreign investment, declining market demand and prices, inadequate experience of local executives in the functions of top technical and managerial positions after 1974, arbitrary fiscal policies, lack of mining laws from 1986 to 1995, contradictory laws thereafter, and an uncertain domestic political, social, and legal environment caused the negative growth rates in the 1980s and 1990s. The 1995 Mining Code, which allows 100 percent foreign investments in mining under the financial and technical assistance mode of mineral disposition, could have revived the industry after 1995 were it allowed to operate unhampered. However, the challenge to its constitutionality at the Philippine Supreme Court stopped most efforts at mineral exploration. The situation was moreover aggravated by the passage of the Indigenous Peoples’ Rights Act of 1997 (IPRA) which granted tribal peoples the right over mineral resources. This served as an even greater deterrent to mineral resources exploration and development. An anti large-scale mining environmentalism, espoused by highly organized groups and fueled by the IPRA, and the alleged adverse impacts of mining on the ecology has made the situation more complex and confused. Finally, it is concluded that prospects for future positive growth of the copper mining industry depends, to a large extent, on the Mining Act of 1995 being ruled constitutional.