Resource Depletion and Productivity in Chilean Copper Mining

TL;DR: In a 2018 article in Resources Policy with Marcelo Villena, we show that the total factor productivity of Chilean copper mining fell sharply between 1985 and 2015 — but not as much as traditional estimates suggest. Around 15% of the measured decline is explained by resource depletion: falling ore grades force mines to use more inputs per ton of copper, which standard methods misread as lost efficiency.

Why does copper productivity matter for Chile?

Chile is the world's largest copper producer, holding roughly 28% of the world's copper reserves. During 2010–2014 copper accounted for 53% of Chilean exports and 16.4% of GDP. Yet the country's share of world production slipped from 35% in 2000 to about 30%, and reported productivity in the industry has been falling for decades. Understanding why matters for both mining policy and the public finances: Codelco, the state producer, went from roughly 80% of national output in the early 1990s to less than a third.

What does the paper ask?

The standard story is that Chilean copper mining became dramatically less efficient. But mining has a feature that most industries do not: the resource itself degrades. As the richest deposits are worked, ore grades decline, so extracting the same ton of fine copper requires more capital, labour, and energy. If you estimate productivity without accounting for that, you attribute the effect of geology to management.

The paper asks: how much of the measured productivity decline in Chilean copper mining between 1985 and 2015 is genuine technological stagnation, and how much is resource depletion?

How is depletion measured?

We estimate a long-run cost function for the industry with capital, labour, and energy as inputs, following the approach of Rodríguez & Arias (2008) and Zheng & Bloch (2014), and introduce resource depletion — proxied by the decline in ore grade — as an exogenous, unpaid force that works against technological change. Ore grade is inversely related to production: the more that has been extracted, the poorer the remaining rock.

What did we find?

Total factor productivity did fall sharply over 1985–2015 — the decline is real. But about 15% of the measured decline is attributable to the increase in the resource depletion variable, not to a loss of efficiency. Ignoring geology makes Chilean mining look worse than it is, and policy aimed at "recovering" that productivity would be chasing a target that is partly unreachable.

The full text, citation, and BibTeX are on the publication page. The article appeared in Resources Policy, Volume 59 (2018), pages 553–562.