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TitleExhaustible resources and the hotelling rule : an empirical test of the hotelling rule"s significance to gold production in South Africa
AuthorMlambo, Courage
SubjectNatural resources -- Mathematical models
SubjectEconometrics
Subject
Date2017
TypeThesis
TypeDoctoral
TypePhD
Format146 leaves
Formatpdf
AbstractThe study sought to test the applicability of the Hotelling rule in South Africa. In environmental economics, the Hotelling rule has come to be a pillar of the exhaustible resources framework and in addition to this, it has presented essential insights into the consumption and extraction of non-renewable resources. Hotelling sought to address one important question which had been unanswered regarding the depletion of exhaustible resources: How much of the natural resource in question should be consumed presently and how much of it should be stocked up for future generations? The focus was to find a solution for those involved in the exploitation of natural resources to choose between the current value of the natural resource if extracted and sold and the future increased value of the asset if left unexploited. According to the Hotelling rule, the extraction path in competitive market economies will, under certain circumstances, be socially optimal. An extraction path that is not socially optimal compromises the welfare of future generations. The welfare of South Africa’s present population and more especially in the future will be greatly determined by the stock of natural resources available and the quality of the environment. Currently, the production processes deplete natural resources. Concern with the supposed increasing scarcity of gold in South Africa, and the possibility of running out of gold, has become a source of concern. South Africa’s gold reserves (gold in the ground that can be extracted profitably) are becoming depleted at an alarming rate. Most reserves are already exhausted; and the costs involved in mining lower-grade ore, and deposits located very deep in the ground, are becoming excessive. In light of this, this study sought to test the applicability of the Hotelling rule in South Africa. In order to empirically test the Hotelling rule, the study was guided by previous literature that had sought to test it. In this regard, the study used both descriptive and inferential statistics. The study has three data analysis chapters. The first two presented and examined the time series properties of gold prices, gold production and gold consumption. The third data analysis chapter examined the relationship between gold price and interest rates. In the first two data analysis chapters, visual inspection, growth rates, variance ratio tests and advanced unit root tests were used to examine the time series properties of gold prices, gold production and gold consumption. Results showed that the behaviour of the gold price series and gold production series in South Africa have a behaviour that is socially optimal. This is in line with the Hotelling rule. The rule predicts exponentially increasing resource prices and this result in mineral resources following the path of the positive trend. The positive trend is prompted by the increasing price reflecting the increasing scarcity of the resource. However, consumption trends were seen to be violating the Hotelling rule. The Hotelling rule predicts that the price increases until it eventually reaches the choke price, where the quantity demanded decreases to zero. However, in contrast to this, results showed that the demand for gold has been increasing instead of decreasing. This is not in line with the Hotelling rule. Furthermore the relationship between interest rate and gold price was negative and this suggested that the price of gold was not rising at the rate of the interest rate. The results of the study suggested that gold production is not following a social optimally path. The study recommended that the government come up with measures that prolong the lifespan of the gold reserves. These included research and development to promote technological innovations in the mining sector. This may make it possible for firms to access lower-grade ores. The study also recommended that since the Hotelling rule partly applied in the gold sector, there is a need to adopt some other theoretical measures that can ensure that the proceeds from the gold taxes are used in the most effective way.
PublisherUniversity of Fort Hare
PublisherFaculty of Management and Commerce
Identifierhttp://hdl.handle.net/10353/4738
Identifiervital:28507