Does a meaningful relationship exist between copper prices and economic growth in Zambia?

Abstract

PurposeThe purpose of this paper is to examine the causal relationship between the copper price dynamics and economic growth in Zambia over the period from 1995 to 2015.Design/methodology/approachThe study uses a data set assembled from five difference sources: the heritage foundation; the London metal exchange index; the Penn World Tables version 9.0; the total economy database; and the World Bank Development Indicators. The paper employs the Bayesian Model Averaging (BMA) approach as the estimation technique.FindingsThe estimates demonstrate that there exists a positive and significant relationship between movements in copper prices and economic growth in Zambia. The study draws policy implications from these findings.Research limitations/implicationsThis study is limited to the period from 1995 to 2015, this is due to lack of data on the country’s institutional indicators, trade openness and the real exchange rate.Practical implicationsThere have been calls to diversify the economy of Zambia due to the recurring chaotic events, which are often induced by over-dependence on copper exports. Thus, the study findings will be useful to academia, policy makers and stakeholders with vested interest in the economy of Zambia.Originality/valueTo the best of the author’s knowledge, this is the first empirical study to investigate the causal relationship that exists between copper prices and economic growth in Zambia. The existing empirical studies in the domain have devoted their attention on establishing the relationship between commodity price movements and exchange rates in Zambia.