The Impact Of Extractive Industry On Sierra Leone Economy:Implication For Poverty Reduction

Extractive industry which consists of agriculture, mineral and hydrocarbon products such as gold, phosphates, diamonds, oils, gas, etc. The industry is the economic block for many developing countries; in some cases this industry constitutes the sole source of fiscal revenues, foreign exchange earnings and surpluses to finance the needed socio-economic development. Since 2002 the price of many mined commodities has risen, which has led to the higher growth rate of many resources rich nations in some cases to record heights. It thus appears that the generosity of nature may sometimes although by no means always turn out to be a mixed blessing. This paper used different approach by taking the entire extractive industry and examining its impact on economic growth and also the link between resource revenue and poverty reduction. This study used multivariate regression techniques in econometric to analyze time series data for period of forth nine years (49) from 1964 to 2012, using quantitative and explanatory research approach, both E-view and Stata Software were used to analyzed the data, the necessary diagnostic tests associated with time series data were carried out in order to make the results reliable and valuable. Our results indicate a positive relationship between resource wealth and economic growth. The finding appears robust in the sense that it remains significant in growth model after controlling for a variable like population; we find that the effect remains the same. The exchange rate is significant, meaning that exchange rate volatility is key factor affecting the growth rate of the economy of Sierra Leone. The domestic savings is significant, and shows a positive relationship with economic growth, as many empirical literatures shows that savings and investment are good for economic growth, this findings has been proven in our case here for Sierra Leone. The population variable is significant with positive sign, meaning that population can contribute to economic growth positively, especially when the labor force is provided with adequate training and skills. Finally we conclude by accepting the null hypothesis; that extractive resources particularly the hydrocarbon and other mines resources have a positive relationship with economic growth. Some policy recommendations are; The Government should promote and enforced mineral resources revenue stabilization and reducing fiscal imbalances, Encouraging mining companies to behave in a more social and corporate responsible manner with a view to improving the social relevance of mining. The government through the central bank and the ministry of finance should direct policy towards inflation and exchange rate volatility. The government should maintain all the principles and guidelines and strictly follow the Extractive Industry Transparency Initiative (EITI) rules.