The impact of Trade Liberalisation on mining sector Total Factor Productivity change of selected countries from SADC

Abstract

Total factor productivity in mining revolves around two main elements: technical efficiency and technology progress of the mining processes. The success of the sector lies in the ability of mining firms to catch up with the relevant technology. The key objective of this study is to investigate the impact of trade liberalization on mining total factor productivity growth. The inquiry is crucial to SADC because mining production is a source of foreign exchange that directly contributes to economic development and growth. Also, in a single-stage model, the study further explored the impact of trade openness on technical efficiency change in the mining sector and the effect of foreign direct investment on productivity concurrently. The Hicks-Moorsteen index was applied to generate the total factor productivity change using DPIN 3.1. Secondly, the study utilised the PARDL - PMG model to estimate the long run and short-run parameters of the impact of trade liberalization on total factor productivity change in the mining sector. This was followed by the estimation of a True Fixed Effects Model (TFEM) by Green (2005a) under the workhorse of the Cobb Douglas SFA to estimate the impact of trade openness on time-varying technical efficiency in the mining sector. The research established that there is a positive and statistically significant long-run relationship between trade openness and total factor productivity change in the mining sector and the short run dynamics varied per country specific. The study also identified that technical progress was positive and statically significant in influencing mining productivity. Nevertheless, there were no technical efficiency gains from trade openness, meaning that the mining sector failed to catch up with technology change that was instigated by trade openness. Poor technical efficiency is ascribed to high levels of market concentration which would result not only in high profits margins but also in mining inefficiency because of the lack of competition from the host countries. The study recommends, progressive trade openness in mining sector and sound investment in human capital development to augment technology transfer and diffusion in the industry. Investing in research and development promotes regional mining innovation in the SADC, and this could be through capacitation of innovation hubs and associated institutions such as universities, polytechnics and independent research institutions. The study suggests that technological progress in the mining sector should target processing and value addition instead of only upgrading technology in extraction. The research recommend that host countries should craft laws that compel new investments in the extraction of minerals to erect processing plants in mining value addition such that a license can only be issued to mining

companies that have a full strategic plan involving exploration - extraction - processing. To instill competition, the study recommend a policy that should address frictionless entry and exit from the industry by investors from the technology leading countries as this would call more players and hence induce competition amongst the big players in the mining sector.