Market Structure and Econometric Modeling- A Case Study of the Wo

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8-1-1979

Market Structure and Econometric Modeling: ACase Study of the World Zinc Industry

Satyadev Gupta

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Recommended CitationGupta, Satyadev, "Market Structure and Econometric Modeling: A Case Study of the World Zinc Industry" (1979). Open AccessDissertations and Teses. Paper 3221.
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"MARKET,STRUCTURE AND ECONOMETRIC MODELING:

"A CASE STUDY OF WE WORLP ZINC INDUSTRY. ' ,

"

QYSATYADEV GUPTA, M.A.'

A Thesissubmitted to the School of Graduate Studiesin Par t ia l Fulfi lment of the Requirementsfor the Degree 'Doctor of Philosophy

McMaster University-August 1979


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********************************* ** ** ** ** ** *~ :* ** *MY FATHER ** ** ** ** ** ** ** ********************************

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THE WORLD ZINC INDUSTRY

I\

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DOCTOR OF PHILOSOPHY (1979)(Economics)

McMASTER UNIVERSITYHamilton, Ontario

TITLE: Market Structure and Econometric M o d e l ~ :A Case Study of the World Zinc Industry

AUTHOR: Satyadev Gupta, B . A . ( H o n s ~ ) (Gujara t Univers ity)M.A. (University of De1h!)M.A. (McMaster University)

SUPERVISOR: Professor J.R. Williams

NUMBER OF P A ~ S : xiv, 296

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ABSTRACT

Zinc, a non- fe rrous metal , i s consumed as an in ter -mediate input in construction and a wide variety of manufacturing indust r ies . Canada, Australia, Peru and Mexicotogether produce about 55 percent of the to ta l output butabsorb on ly about 8 percent of the to ta l zinc consumed inthe free marke t wor ld . On the other hand, U.S.A., Japanand the E.E.C. countries together share in about 72 percentof the to ta l consumption but produce only 25 percen t o f theto ta l zinc ores produced in the free market world. Theselarge imbalances in production and consumption of zincplace i t in the group of important internat ional primarycommodities. The major aims of this study are to providea systematic u n d e r s t a n d ~ n g of the ins t i tut ional and beha-vioral character ist ics of the world zinc industry, and toanalyse i t s performance properties in the framework of aformal model of the internat ional market.

A detailed study of the organisat ional st ructureof the i ndus tr y r evea ls tha t as many as 24 corporate groups(including thei r mul tinat ional opera tions) share in about

,65 percent of the raw zinc produced in the free market

. \ . - /world. In the absence of any other information to the

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contrary, th is low degree of concentrat ion in terms ofmarket control i s taken as an evidence for the absence ofnon-competi tive behavior on the se l le r s ' side. However,the working of the free market forces has, often, beeninfluenced by the intervention of the u.s. Governmentthrough i t s stockpile program, t a r i f f s , quotas, and othermeasures for the protection o f the domestic industry. Thisenvironment, in turn , has enabled the major u.s. producersto exercise some degree of control on the domest ic marketthrough the variat ions in the i r stocks of zinc and capacityu ti li sa tio n r at io . However, the world market on th e buyers 'side consists of a large number of small consumers of zincproviding a competitive environment.

A fair ly detai led market form of econometric modeli s bui l t , based on the above ins t i tu t iona l framework andrelevant technological and behavioral f e ~ t u r e s . i n estimatedversion of the model indicates di fferent systems of lagresponses in the structures of demand and supply to the priceof zinc, a very poor subs t i tutabi l i ty on the demand side,free market price as a long-run equi l ibrator for the U.S.producers' price , and an important influence of the U.S.intervent ions on the wor ld marke t. The model meets reason-ably well the p red ic t ab i li ty c r it e ri on based on th e te chnique

. o ~ dynamic simulat ion. The performance properties of theworld zinc industry, analysed through dynamic multipl ier

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simulat ion technique, show tha t the industry exhibi ts a....

reasonably stable markJt environment to the exogenous dis-turbances such as an increase in the ac t ivi ty leve ls ofconsumers and variat ions in the prices of subs t i tutes . I ti s , however, quite sensitive to technological changesin the consumer industr ies . The s to ckpi le poli cy of theU.S. Government does not seem to be properly geared to i t sobject ives, and, in g en era l, it seems to have res t r ic tedthe development of the industry as a whole.

Despite the usual limi ta ti on s o f a f i r s t systematicstudy, it i s hoped tha t th is work wil l contribute towards abet te r understanding of the sa l ien t features of theinoustry, provide a reasonably suff ic ien t scope for broadpolicy evaluations, and faci l i ta te the forecasting of thebehaviour of major market variables.

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ACKNOWLEDGEMENTS

I wish to express my deepest g ra titu de to themembers of my supervisory committee, Pro fe ssor s J .R .williams (Chairman), F.T. Denton and R.A. Muller, forthe i r continuous help and inspira t ion a t a l l stages oft hi s d is se rt at io n . Also, I must mention ProfessorsF.G. Adams and J.R. Behrman, in the same sp i r i t , forthe i r valuable help in the preparation of th is thesisduring my v is i t at the Universi ty of Pennsylvania. Inaddi t ion, I would l ike to thank Dr. A.V. Cammarotta J r .and Dr. W.Y. Mo of the U.S. Bureau of Mines fo r h elp fu ldiscussions on the subject .

Many ins t i tut ions have provided f inancial andother support for this study. More p a r ~ ~ l a r l y . I wifhto acknowledge my grat i tude to McMaster Universi ty for\agenerous fellowship and the Universi t ies of Delhi andthe West Indies for study leave and grants . I am alsograteful to the University of Pennsylvania for providingvarious fac i l i t i es during my stay as a vis i t ing r e ~s tudent .

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...

I would also like to thank my teachers andcol leagues , P ro fessQrsA.L . Nagar and A. Bhaduri of theuni'versi ty of Delhi, Professors P.J . George, A.A.Kubursi, A. Ahmad, and R.W. Thompson of McMaster Univer-sitYI and Dr. E.B.A. S t. Cyi of the University of theWest Indies for the i r help and encouragement.

I also owe a deep sense of appreciat ion to ~ ywife Sar i ta and d a u g h ~ e r Hansa, and my parents and other

m e ~ e r s of the family for the i r pat ience, support andencouragement during the course, of the study. Final ly ,I am"very thankful to Mrs: V. Youssef for suggesting ~ a n yl inguis t ic improvements inand Mrs. J . Prempeh for

the j eS iS , and Mrs. J . Nicholsona P ~ r a b l e typing

assistance. I alone, however, bear the r ~ s p o n s i b i l i t y' -

far any shortcomings' of the study.

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CHAPTER.I

CHAPTER II

TABLE OF,CONTENTS

Introduction and Outline1. Introductory Remarks2. Basic ,Aims and Overview of

the Study3. Organisation of the Study

The Internat ional Market for Zincl. World Supply of Zinc2 . World Demand for Zin93. Internat ional Trade4. The Price System'S. National Policies and the

Inte:r;national MarketAppendix, Chapter I I

(Technological Aspects of Pro-duction and Consumption, andMajor Uses of Zinc)

11,

4.

71011284046

6071

90v,

J

CHAPTER I I I Organisational Structure of ' the, World Zinc Industry

1. Corporate Structure ofWorld Zinc ~ l i n i n g Industry 92

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150

151

165

CHAPTER ,IV

C H A P ~ R V

Page2. Vert ic a l I nt eg ra ti on and

the Corporate Structure ,ofthe Smelting Industry 99

3 . Future Developments ' andCorpora te Control 108'

'4 . Internat ional Organisat ions 118~ p p e n d i x , Chapter I I I 133

(Organisat ional Structure , AHistorical Perspective)Econometric Modeling of MineralIndustr ies: ,A Survey and Specif i-cation of a Model for Zinc

1. Models of Mineral Commodi-t i e s , A Survey

2. Organisational Structureand Modeling of the Worldzinc Industry 160

3. A General Specification ofthe Model of the WorldZinc ' Industry

Econometric Estimation of the~ ~ d e l s of the World Zinc Industry 183

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,

Page1. General Remarks on Methodo-

logy and Data 185

CHAPTER VI

2. Model l Estimation Results 1883. Model 2 Estimation Results 206

List of Variables and Their Symbols 215Performance of the Models of the

CHAPTER VII

CHAPTER VIII

World Zinc Industry1. Methodological Remarks2. Modell Simulations3. Model 2 Simulations

Dynamic Multiplier Simulationswith the Econometric Models

1. MUltiplier SimulationExperiments

2. Results of Multipl ierSimulation Experiments

Summary and Conclusions1. Organisational Structure

222222227235

-244

-245

248258

2592. Model and Results of Estimation 2623. Test of Performance and

Applicat ions4. Concluding Remarks

270275

/ APPENDIX ABIBLIOGRAPHY

Charts of Dynamic Simulations(Model 2) 278291

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-.

TableIL l11.2I I . 3'

11.4I I .5

11.6

I I . 7I I .8II .A. l

. I I .A.2

I I . A. 3

I I L I

I I I . 2

LIST OF TABLES

DescriptionWorld Zinc Resources, 1973F.M.E. World Zinc Ore ProductionF.M.E. World Z inc Metal ProductionClosure of U.S. Zinc Smeltors, 1969-73Supply-Demand Imbalances in F.M.E. World,

1 9 6 ~ - 7 4F.M.E. World Zinc in Concen tr at e T rade ,1974F.M.E. World Zinc Metal Trade, 1974U.S. Government Stockpile of Zinc, 1945-75World Consumption of Zinc Metal by Sectorof Intermediate Demand 1956-74U.S . Consumption of zinc by Sectors ofFinal Demand 1956-73Zinc by-product and co-product R e l a t ~ o n - .ship in the U.S.A., 1973Corporate Structure of F.M.E. World ZincOre ProductionCorporate S tru ctu re o f F.M.E. WorldSmeltor Production

xi

Page

141823

25

42

444466

75

76

86

93

100


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;..page

Table DescriptionI I I .3 Vert ica l Integrat ion 101I I I .4 F.M.E. World Smeltor Capacity, 1974-80 110I I I . 5 - Structure of the Canadian zinc Industry 123I I I . 6

III .7I I I . 8I I I . 9

S tru ctu re of th e Australian ZincIndustryStructure of the Japanese Zinc Industry'Structure of the European Zinc Industry"'Structure of the United States ZincIndustry

124125-6127-9

130-2V.l A Comparison of Price and Income

Elas t i c i t i es of Demand, ~ I D d e l 1 andModel 2 208

V.2VIol

VI. 2

Estimates of Demand Equations, Model 2Sample Period Dynamic Simulation Errors(1965-74 )The World Zinc Industry: Dynamic

210-14

226

VI. 3

VII. 1

Simulation, Model 1The World Zinc Industry: DynamicSimulation, Model 2Multipl ier Simulations: An Increase inthe Economic Activity in the World

, 232-4

237-43

249VII.2 MUlt ip l ie r S imula tions : A Technological

Change in the Automobile Sectorx ii

250


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VII . 3

Page

Description IMultiplier Simulations: An increasein the Price of Aluminium by the

VII .4International Bauxite AssociationMultiplier Simulations: A Change in-

253-4

the U.S. Government Stockpile Policy 256

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Documents

Market Structure and Econometric Modeling- A Case Study of the Wo