RDP 2011-08: The Mining Industry: From Bust to Boom 1. Introduction

The Australian mining industry experienced a remarkable revival over the 2000s. At the beginning of the decade, mining was dismissed as emblematic of Australia's ‘old economy’, with prices for key resource exports at their lowest levels in real terms for a century.[1] This seemed to corroborate the Prebisch-Singer hypothesis that commodity prices would continue to fall over time relative to other goods and services.[2] However, the rapid urbanisation and industrialisation of emerging economies in Asia dramatically transformed global commodity markets over the 2000s. This paper highlights the turnaround in the fortunes of the mining industry, and discusses the effects on the economy more generally.

Australia has been particularly well placed to beneft from the rise in demand for commodities. As discussed in Section 2 of the paper, the prices of commodities used in steel and energy production rose particularly sharply over the decade. In response, the composition of the Australian mining industry shifted towards the extraction of coal, iron ore and liquefed natural gas (LNG), and away from metals processing, as outlined in Section 3. In the second half of the decade, mining investment rose to its highest recorded levels as a share of the economy. Along with expansions in coal and iron ore, several very large LNG projects commenced in response to strong demand for natural gas, with a number of Asian economies looking to diversify their sources of energy. The high level of investment is expected to result in substantial increases in resources production by the mid 2010s.

The rise in global commodity prices has boosted activity and incomes in the economy and encouraged the factors of production to shift towards the mining industry. Section 4 outlines the strong growth in labour, materials and investment in the mining industry, along with its effect on national incomes and domestic demand. The effects were initially more easily identifable in the resource-rich states of Western Australia and Queensland, although by the end of the decade, the benefts appeared to be fowing more evenly across the country.

Australia's macroeconomic performance during this period has been much more stable than in the earlier mining booms between the late 1960s and early 1980s. Section 5 argues that part of the explanation is a stronger institutional framework, with a foating exchange rate, decentralised wage bargaining, an infation-targeting regime and more fexible product markets. The clear price signals and fexible economic environment helped to encourage resources to shift towards the mining industry without destabilising broader infation expectations.


For instance, Macfarlane (2002) noted the criticism Australia received during the World Economic Forum in Melbourne in 2000 for not making more IT and telecommunications investments. [1]

See Gillitzer and Kearns (2005) for a discussion of the Prebisch-Singer hypothesis. [2]