Can Commodity Booms Hurt Growth? IMF Research Reveals the Productivity Paradox in Chile

An IMF study on Chile's copper boom finds that soaring commodity revenues did not improve mining productivity, as labour and resources shifted toward less efficient firms, reducing overall sectoral efficiency. The research urges governments, development partners, and businesses to pair commodity-led growth with market reforms, productivity-enhancing investments, stronger supply chains, and competitive institutions to ensure long-term economic development.

Commodity booms have long been viewed as a shortcut to economic growth, bringing higher exports, rising government revenues, and stronger investment. But a new International Monetary Fund (IMF) Working Paper suggests that these windfalls do not automatically make economies more productive. Research by IMF economists Pablo Filippi, Ryan Kim, Nan Li, María Jesús Pérez, and Younghun Shim finds that Chile's copper boom, driven by China's rapid industrialisation, increased mining revenues but also contributed to lower productivity because labour and resources shifted toward less efficient firms. The findings offer timely lessons for countries expecting a new wave of demand for critical minerals such as copper, lithium, cobalt, and nickel as the global clean energy transition accelerates.

Bigger Mining Industry, But Lower Productivity

Chile provides one of the strongest examples of how commodity wealth does not always translate into long-term economic efficiency. As the world's largest copper producer, the country benefited enormously from soaring global copper prices during the 2000s. However, despite record export earnings, the study found that mining total factor productivity fell by around 8% between 2005 and 2013, even after accounting for declining ore quality and increasingly difficult mining conditions.

To understand why this happened, the researchers analysed firm-level administrative data covering 2003 to 2013, combining tax records, customs data, employer-employee information, production networks, and trade statistics. The analysis showed that mining companies expanded rapidly during the commodity boom. Exports increased, firms hired more workers, and spending on production inputs rose significantly. However, much of the additional income went toward expanding operations rather than investing in new technologies or improving efficiency. In other words, firms became larger, but they did not become more productive.

Labour Misallocation Emerges as the Biggest Challenge

One of the study's most important findings is that labour market distortions played a major role in reducing productivity. Companies with lower productivity but stronger export exposure used their higher revenues to offer better wages and attract workers from more efficient competitors. As skilled employees moved to firms that were less productive, overall efficiency across the mining sector declined.

The researchers estimate that this labour and resource misallocation explains about half of the observed 8% decline in mining productivity, while the remaining losses are linked to geological challenges, investment constraints, and other mining-specific factors. The findings challenge the assumption that market forces alone will ensure that resources flow to the most productive businesses during periods of rapid commodity growth.

For policymakers, this highlights the importance of looking beyond export volumes and GDP growth. Commodity booms may increase national income, but without competitive markets and efficient labour allocation, they can weaken long-term economic performance.

Development Partners and Businesses Have Much to Gain

The research also presents a more encouraging picture for industries supporting the mining sector. Companies supplying machinery, transportation, engineering services, construction materials, and business services experienced stronger sales, higher investment, increased employment, and measurable productivity improvements. Unlike mining companies themselves, these suppliers successfully converted rising demand into long-term efficiency gains.

This finding has important implications for international development partners such as the World Bank, IMF, African Development Bank, Asian Development Bank, and regional financial institutions. Rather than focusing solely on increasing mineral production, future programmes could place greater emphasis on strengthening domestic supply chains, promoting technology adoption, improving workforce skills, and supporting competitive industrial ecosystems that allow commodity wealth to spread across the wider economy.

For private-sector stakeholders, the study points to significant opportunities beyond mineral extraction. Companies involved in mining equipment, digital technologies, logistics, renewable energy, automation, engineering, and industrial services could benefit from rising investment as countries modernise their mining sectors. Firms that prioritise innovation and operational efficiency are likely to remain more competitive than those relying solely on high commodity prices.

Turning Commodity Wealth into Sustainable Growth

The study arrives as governments worldwide compete to secure supplies of critical minerals needed for electric vehicles, batteries, renewable energy infrastructure, and advanced manufacturing. Many resource-rich countries across Africa, Latin America, Asia, and Australia are preparing for another investment boom.

The IMF research suggests that attracting investment and increasing exports should not be the only policy objective. Governments can maximise long-term economic benefits by promoting competition, improving labour mobility, encouraging productivity-enhancing investment, supporting technology adoption, and creating business environments where efficient firms are rewarded. Development partners can reinforce these efforts by financing institutional reforms, skills development, digital transformation, and resilient supply chains.

The central message is clear: commodity booms can create enormous economic opportunities, but they do not guarantee lasting prosperity. Sustainable development depends not only on the value of natural resources, but also on how effectively countries allocate labour, capital, and investment to build productive, competitive, and diversified economies.