Natural resource based growth, global value chains and domestic capabilities in the mining industry

Abstract

Received theory of production is not very useful if we try to understand what the ‘sources’ of growth are when we deal with natural resource-based sectors of economic activity. In these industries, a complex set of interactions and co-evolution prevails between firms producing the commodity and leading the value chain, subcontractors supplying them with machinery, equipment, services and process engineering knowhow, public sector agencies monitoring their environmental impact and local communities engaged in the exploitation of the resource. These agents interact on a daily basis giving rise to a complex set of ‘sector specific’ rules of governance which vary from country to country and from sector to sector.In this paper we look at the mining industry, that has experienced a very rapid process of change due to the dramatic expansion of demand from China, India and other economies, and to major changes in the international knowledge frontier in many different scientific and technological disciplines (e.g. geology, biotechnologies, digital and computer sciences, health sciences and engineering). These developments have induced dramatic changes in the industry and most notably in the patterns of interaction among the various agents mentioned above. A similar process of sector-specific dynamic interdependencies seems to prevail in other natural resource based sectors, such as aquaculture, forestry products and others. In this paper we present a model of these interactions and sketch out an analytical view as to how production organization takes place in the mining sector, and how these location-specific forces induce change in the industry over time. Our way of looking at these issues has strong policy implications which we briefly examine in the final pages of the paper.