Short-Run and Long-Run Effects of Copper Mining on Peru’s Recent Economic Growth

• Published in: International advances in economic research Vol. 27; no. 2; pp. 131 - 145
• Main Authors: Larios-Meoño, J. Fernando, Mougenot, Benoit, Álvarez-Quiroz, V. Josué
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-05-2021; Springer Nature B.V
• Subjects: Copper; Economic Growth; Economics; Economics and Finance; GDP; Gross Domestic Product; International Economics; Macroeconomics/Monetary Economics//Financial Economics; Microeconomics; Peru; Vector autoregressive (VAR); Q32; Vector error correction (VEC); Dutch disease; Copper mining; Natural resource curse theory
• ISSN: 1083-0898; 1573-966X
• DOI: 10.1007/s11294-021-09821-8

Peru is the second-largest producer and exporter of copper in the world. This paper proposes a novel approach to assess short-run and long-run effects of copper on Peru’s recent economic growth. Annual data over the 2014–2018 period were used to calculate a Mining Contribution Index (MCI). An institutional quality indicator of the World Competitiveness Index of the World Economic Forum measured the dependence of Peruvian economic growth on mining and the quality of its institutions, respectively. Then, monthly data during the period 2005–2018 were used to run vector autoregressive (VAR) and vector error correction (VEC) models to measure copper’s effects on the country’s economy over time. VAR-VEC models included copper production, exports, international price, investment, taxes paid by producing companies, and Peru’s gross domestic product (GDP). Stationarity and causality of variables were verified with the Augmented Dickey-Fuller and Granger tests, respectively. Due to the presence of non-stationary variables, a VEC model was implemented to forecast short- and long-run effects. The main results show that real GDP responds to copper output and other related explanatory variables differently, depending upon the instrument applied. Peruvian GDP has increased dependence on copper mining. The quality of its institutions could explain the presence of Dutch Disease or resource curse theory. Short- and long-run effects of copper output on GDP were generally statistically non-significant. GDP was statistically significant in relation to other mining variables, such as copper exports and the international price of copper.