Mineral commodity exports, exchange rates and growth: a case study of gold and other minerals in South Africa.

Abstract

This thesis aims at assessing the role of mineral exports for a developing economy, with a focus on commodity prices and supply, exchange rates, and growth. The study is especially concerned with the case of gold in South Africa, which is considered within a broader theoretical and empirical framework, encompassing other minerals and countries. The contradictory alternatively seen as effects of a a blessing or large mining sector, a curse for economic development and policy-making (or, rather, as a mixed blessing), provide the thread underlying the study. A growth model of a mineral developing economy is initially proposed, and tested over a 25-year period. A double weak-convergence equilibrium, and related differences across countries, are found to be partly explained by the performance of international prices of the main export minerals. A literature review draws attention to other development issues, with emphasis on exchange rate analysis. The picture ii one of controversial hypotheses and empirical findings, which are largely explained by objective differences in such aspects as mineral, country, and period analysed. Within this context, the thesis subsequently evaluates the role of the gold price for the South African real and nominal exchange rates in the 1980s and early 1990s. Results, based on econometric techniques applied to monthly observations, point to the gold price as a determinant of both exchange rates in South Africa, even if with some variation over the sample period. A recursive equation model is constructed to link South African gold mining to a macroeconomic framework. This model allows reconsideration of the above results with a new approach, employing a different time period and observation frequency (1970- 1994 annual data), and draws implications in terms of real exchange rate misalignment and economic growth. The results highlight the potential for a moderate recovery in gold mining and the need for adequate development strategies for the mining sector in South Africa, in view of the challenging requirements of the near future. The last part of the study turns to examine company-level statistics for gold and other minerals, so as to test hypotheses on the supply behaviour of mines which are ignored, or at best presumed, by studies exclusively relying on macro data. Results, based on pooled data, suggest the relevance of microeconomic, geological and, in some cases, institutional factors to account for different mineral supply responsiveness.