Capacity Utilisation and Productivity Change in the Australian Metals Mining Industry

In this paper multifactor productivity of the Australian metals mining industry is analysed for the years 1969-70 to 1993-94. Particular attention is paid to account for changing capacity utilization and for returns to scale in the industry, using a cost-theory based approach. The translog cost function is employed to provide estimates of productivity growth, returns to scale and the index of capacity utilisation in the industry. The main findings are: (1) capacity utilization in the mining industry is found to have increased over time (2) the annual average multifactor productivity growth rate in the metals mining industry has declined over time (3) an increasing long-run and short-run returns to scale are existed, however, the annual average short run returns to scare is declining, implying that the annual average short-run returns to scale is declining, implying that the industry has realised most of the efficiency gains associated with expanding capacity. Overall, the study suggests that the mining industry has grown sizeably, but that productivity gains are diminishing over time. Reasons for this are hypothesized and include taking on less-productive mining sites, facing new higher costs, overutilization of the exist capacity, and realizing lesser returns to scale with additional industry expansion.