An Analysis on the Impact of FDI on Mining, Mining Taxation and Economic Growth on Mineral Depletion of the Extractive Industry in Zambia

Abstract

As a country endowed with abundant mineral resources, Zambia's mining industry holds significant potential for driving economic development and fostering prosperity (Mbilima, 2021). However, the relationship between FDI inflows, taxation regimes, and overall economic growth in this sector needs a comprehensive analysis to understand their impact and implications. Therefore, this study examined trends of FDI, evaluating how these investments made an impact on mining taxation, and economic growth. This study used a quantitative research approach for data collection meaning that quantitative data was gathered which included historic data on mineral depletion, mining taxation, mining FDI and economic indicators such as GDP per capita. Further, the study utilized a descriptive research design to achieve its goals and adhere to the quantitative research methodology by employing econometric models to analyse the relationship between FDI, mining tax and economic growth. The study made use of E-Views statistical analysis package for the purpose of data analysis and opted to make use of a regression analysis, given the objectives of the study. Diagnostic tests were run to test for multicollinearity, heteroscedasticity, model specification and goodness of fit of the model. The key variables included FDI inflows, effective tax rates, extractive industry outputs and GDP growth. The study found that in the short run taxation with a lag of one period had a negative effect on the mining sector, with the lack of an effect in the long run. FDI was found to have a statistically significant positive effect on the mining sector in the short run. However, in the long run FDI did not have a statistically significant effect on the mining sector. By comparing Zambia’s experience with other resource rich countries globally and in the African context, the research provides valuable insights concerning FDI in the extractive industry. By understanding these dynamics, policy makers can design effective strategies to enhance substantial mining practices, attract FDI and promote economic growth.