Energy and the viability of downstream integration: Cross-country evidence from the copper industry

Resource-rich developing countries have been increasingly pursuing downstream value addition to maximize the economic and political benefits of their mineral sectors. In light of policy initiatives to integrate mining with downstream industries, we examine the role of energy as a key factor in the viability of mineral processing. Using a cross-country panel dataset describing copper ore and refined copper production in 73 countries over 26 years (1990-2015), we estimate the impact of (i) industrial electricity prices, (ii) electricity generation and (iii) the time and cost to obtain an electricity connection on the size of local downstream activity. We also estimate the impact of these factors on a measure of downstream integration, defined as the share of refined copper in ore and concentrate sourced domestically, imported or recycled from scrap. We find that countries with greater levels of gross electricity production tend to produce higher levels of refined copper output. Downstream activity is also higher in countries where firms pay lower end-use prices of electricity. Among countries that produce ore, lower industrial electricity prices are associated with greater downstream integration.