Australia’s Mining Productivity Paradox: Implications for MFP Measurement

29 Pages Posted: 26 Nov 2010  

Simon Zheng

Government of the Commonwealth of Australia - Productivity Commission

Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance

Date Written: September 15, 2010

Abstract

This paper investigates the mining industry's poor productivity performance as measured by the conventional multifactor productivity (MFP) index during the recent mining boom in Australia. We derive a relationship between the measured and 'true' MFP growth that separates the effects of returns to scale, market power, capacity utilisation and natural resource inputs from measured MFP. Using exploration capital as a proxy for natural resource inputs, a translog variable cost function is estimated to provide parameter estimates for the various components in the decomposition equation. The results show that the average MFP growth in Australian mining based on the dual measure of technical change is nearly 2% over the sample period 1974-75 to 2006-07, rather than 0.01% from the published index. The difference arises because changes in natural resource inputs have subtracted 1.14 percentage points from the 'true' MFP growth, while the effects of capacity utilisation and returns to scale are also negative but less sizeable in impact.

Keywords: Mining, productivity, MFP

JEL Classification: C32, L72, O40

Suggested Citation

Zheng, Simon and Bloch, Harry, Australia’s Mining Productivity Paradox: Implications for MFP Measurement (September 15, 2010). CRAE Research Paper No. 201012. Available at SSRN: https://ssrn.com/abstract=1715235 or http://dx.doi.org/10.2139/ssrn.1715235

Simon Zheng (Contact Author)

Government of the Commonwealth of Australia - Productivity Commission ( email )

Level 28
35 Collins St.
Melbourne, Victoria, Victoria 3000
Australia

Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance ( email )

Curtin University
GPO Box U 1987
Perth, 6845
Australia
+61 8 9266 2035 (Phone)
+61 8 9266 3026 (Fax)

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