Holmes Institute HI5003: Economics of the Australian Mining Industry

This report analyzes the Australian mining industry, focusing on its economic aspects. It begins with an introduction to Australia's resource wealth, particularly in minerals, and the significance of the mining industry, which contributes significantly to exports and GDP. The report outlines the mining industry's background, including key minerals and its oligopolistic market structure dominated by a few large firms. It then delves into the resource boom that started in 2003, examining its causes and impacts on the mining industry, such as increased production, employment, and revenue, as well as the broader Australian economy, including impacts on GDP, employment, and living standards. The report also discusses government policy during the boom and concludes by emphasizing the mining industry's crucial role in Australia's economy. The analysis includes figures illustrating exports, market structure, demand and supply dynamics, and macroeconomic equilibrium, supported by references to relevant academic sources.

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INTRODUCTION
• Australia: enviable amount of wealth
• Abandon stock of resources
• Raw material for most industries
• Minerals export comprises 35 percent of export
• World largest exporter of coal
• Nickel, copper, aluminum, silver, diamonds and other precious metals
• Resources boom started since 2003

MINING INDUSTRY’S BACKGROUND
• Several minerals, hydrocarbon and non-mineral reserves
• A well-developed mining industry
• Iron ore, gold, zinc, lead and nickel
• Contribute 50 to 60 percent of total export
• 7 percent of Australia’s GDP
• 370 acting mining sites
• Western Australia, New South Wales and Queensland
• Generates huge employment Figure 1: Exports of mining
industry

MARKET STRUCTURE OF MINING
INDUSTRY
• High concentration ratio in mining
• Concentrated among few firms
• 1300 mining companies
• Few large firms dominate
• BHP Billiton, Shell, Chevron and Rio Tinto
• Homogenous oligopoly market.
• Restricted entry: huge capital requirement.

RESOURCE BOOM IN AUSTRALIA
• Resource boom
• Most important event
• Began since 2003
• Favorable terms of trade and exchange rate
• Growing resource demand from emerging Asia
• Increase in global commodity
• Growing investment in resource sector
• Expansion of production and export Figure 2: Selected resource export
during resource boom

IMPACT ON MINING INDUSTRY
• Long standing implication for mining industry
• Mining related construction and business service expanded
• Mining companies benefitted significantly
• Enjoyed economies of scale
• Rapid increase in price of coal and iron ore
• Focus shifted towards these two sub sectors.
• Contribution to GDP increased

IMPACT ON MINING INDUSTRY
• Account 14% of GDP by end of resource boom
• Revenue increased
• Investment expanded
• Increase in employment opportunities
• Employment grew by 0.7%
• Mining output grew by 3%
• Increased demand, higher growth of the sector
Figure 3: Demand and supply
analysis of mining industry

IMPACT ON AUSTRALIAN ECONOMY
• Positive spill over effect
• Increase in living standard
• Increase in per capita real GDP
• Disposable income grew by 13 percent
• Gross domestic income grew by 6%
• Aggregate output expanded
• Increased capital stock

IMPACT ON AUSTRALIAN ECONOMY
• Capital stock boosted aggregate supply
• Real GDP increased by 6 percent
• Increase in aggregate employment
• Fall in unemployment rate
• Upward pressure on price
• Higher aggregate demand
• Higher GDP and price level Figure 4: Impact of resource boom on
macroeconomic equilibrium

GOVERNMENT POLICY
• Appropriate policy measure during resource boom
• Strong fiscal position
• Net debt: only 6.1% of GDP
• More restrictive fiscal policy
• Lower government expenditure
• Government withdrawn nearly $50 billion
• Fund to be invested during recession

CONCLUSION
• Mining industry: one crucial sector
• Huge stock of natural resources
• Contribute to GDP, employment and export earning
• Oligopolistic market structure
• Resource boom since 2000
• Favorable terms of trade, exchange rate, increase in global commodity
price
• Expansion of mining sector and the Australian economy

REFERENCES
• Bashar, O.H., 2015. The Trickle‐down Effect of the Mining Boom in Australia: Fact or
Myth?. Economic record, 91, pp.94-108.
• Besanko, D. and Braeutigam, R., 2013. Microeconomics. John Wiley & Sons.
• Brueckner, M., Durey, A., Mayes, R. and Pforr, C., 2013. The mining boom and Western Australia’s
changing landscape: Towards sustainability or business as usual?. Rural Society, 22(2), pp.111-
124.
• Connolly, E. and Orsmond, D. 2013. The Mining Industry: From Bust to Boom. [online]
Rba.gov.au. Available at: https://www.rba.gov.au/publications/confs/2011/pdf/connolly-
orsmond.pdf [Accessed 18 Sep. 2019].
• Ergas, H. and Pincus, J., 2014. Have mining royalties been beneficial to Australia?. Economic
Papers: A journal of applied economics and policy, 33(1), pp.13-28.