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

Abstract

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.

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Notes

  1. 1.

    This growth was mainly due to better performance of Las Bambas, Antapaccay, Antamina, and Chinalco mining companies, whose production accounted for around 50% of national production. Finally, regarding long-run production prospects, there are other copper projects, such as Tía María (Arequipa), Mina Justa (Ica), Pulkaqaqa (Huancavelica), Magistral (Áncash) and Río Blanco (Piura), which represent a joint investment of US$6.014 million and would start operations between 2019 and 2022. In addition to these projects, there is Ariana (Junín), the extension of La Arena (La Libertad), the extension of Toromocho (Junín) and Conga (Cajamarca), which would start operations between 2020 and 2021, accounting for a total investment of US$6.346 million (Ministry of Economics and Finance, 2018).

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Acknowledgements

In memory of Dr. J. Fernando Larios-Meoño (1954-2021).Authors are very grateful to comments and suggestions from two anonymous reviewers of this paper. All remaining errors are the authors’ responsibility.

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Correspondence to Benoit Mougenot.

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Larios-Meoño, J.F., Mougenot, B. & Álvarez-Quiroz, V.J. Short-Run and Long-Run Effects of Copper Mining on Peru’s Recent Economic Growth. Int Adv Econ Res 27, 131–145 (2021). https://doi.org/10.1007/s11294-021-09821-8

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Keywords

  • Copper mining
  • Dutch disease
  • Vector autoregressive (VAR)
  • Vector error correction (VEC)
  • Natural resource curse theory

JEL

  • Q32