Impact Of BHP Billiton Income On Australian GDP

Mining Industry’s Contribution to Australia’s Economy

The research report discusses how income of BHP Billiton, one of the top ten mining companies in Australia effect GDP of Australia. The first section of the report includes research background along with specific research aim and development of research questions and review of past literature. The second part demonstrates chosen methodology for the paper, summary of finding from the data analysis and draws strong conclusion from the conducted research.

Resource sector especially mining and energy resources have undeniable contribution for robust economic growth in Australia. The mining boom in Australia brought significant revenue both to the federal and state government (aph.gov.au, 2018). The sector provides necessary raw materials to the modern society. Mineral industry in Australia mostly covers exploration, mining of different minerals and also the associated mineral processing sector. Mining sector alones contributes nearly 8 percent of Gross Domestic Product in Australia. Australia holds one of the positions among the top five mining producers in the world (Zhang et al., 2015). The primary mining stuffs in Australia include iron ore, coal, alumina, tantalum, rutile, lithium, gold, diamond, copper, silver and coppers.

The major mining companies of Australia are Adani Mining, Bechtel, BHP Billiton, Cuesta Coal, Rio Tinto, New Mount, Yancoal and some others. Among these BHP Billiton ranked as the largest mining company in world in the year 2017. BHP Billiton has considerable contribution to develop Australia as a rich and prosperous economy of the world. The company employ around 35,000 people Australia and pays a payment which is higher than the national average wage. BHP Billiton remains the largest tax payers to the Australian government (bhp.com, 2018). Realizing the vast contribution of mining industry and in particular of BHP Billiton, the present paper attempts to find the influence of BHP Billiton income on GDP of Australia. Income effect of the company is modeled in terms of annual revenue earned by the company. Besides annual revenue dividend payment and market capitalization are taken as control variables and the moderating impact of these two components on GDP is evaluated. Impact of these variables on Australian GDP are examined using time series data for last fifteen years.

The current research paper aims to find out how income of BHP Billiton influences GDP of Australia over time. The particular research questions that the paper addresses are as follows

What is the trend growth path of BHP Billiton?

How annual revenue of BHP Billiton alone influences Australian GDP?

BHP Billiton and Its Contributions to Australia’s Economy

How annual revenue along with dividend payment and market capitalization influence GDP of Australia?

Mining industry and GDP of Australia 

Mining includes exploration and processing of different mineral deposits of a nation. In Australia, many of the mineral resources are unevenly distributed across different regions. Western Australia for example is rich in iron ore and gas, New South Wales and Queensland are rich coal and coal seam gas (Bjornland & Thorsrud, 2016) Australian mining industry experienced a considerable structural shift during the since early 2000s. The growth in mining industry source from a high price of resources resulted from a combination of high resource demand in from advanced economies and inelastic response from the supply side (Syed et al., 2015). The higher resource prices created substantial opportunities for miming companies. The investment and associated employment in mining sectors grew rapidly since 2011. Capital investment in the sector as a share of Australian total rise significantly (Zhang, A. and Moffat, 2015). The long expansionary phase in mining sector is known as the period of mining boom. The mining boom had considerable influence on employment and GDP of Australia. The mining boom was larger in comparison to any other commodity boom in Australia. Since then mining accounts a significant share in GDP of Australia. In terms of valued added, contribution of mining in Australian GDP during 2011-2012 was 10 percent (Deephouse, Newburry & Soleimani, 2016). The gross fixed capital formation estimated in prices of 2011-12 accounted 4 percent of GDP at this time. This was the highest contribution by a single industry in an economy. Capital expenditure in mining was recorded 53 percent of private capital expenditure valued nearly $82 billion. The gross value added produced by mining in Australia is approximately $140 billion in 2012. Of this mining sector alone contributed approximately 90 percent (Howarth. Quaglia & Liebe, 2017) Rest of the value added was generated by exploration and mining support services.

Annual revenue and GDP 

Revenue of big companies contribute a significant portion of GDP of a nation. There are several channels through which earnings of a company influence national income. A considerable portion of firms’ income is contributed from household and public sector consumption (Li, Zhang & Xiao, 2017) An increase in company’s earning thus represents an increase in consumption expenditure from both household and government which constitute an important part of GDP. Revenue of a firm also represents a sales and production of investment goods. In the phase of globalization and growing operation of multinational corporations, revenue of a company also depends on the income generated abroad (Zhao, 2016) This adds to another channel in to the GDP contribution. Sales of firms good abroad is included in the net export term of GDP.  Taxes paid by the companies add to government expenditure. As tax revenue increases, government can spend more on the economy which in turn increases GDP of a nation (Qian et al., 2018).

Research Questions

Dividend payment and market capitalization 

In addition to revenue two other significant factors in balance sheet of a company are divided payment and market capitalization. Dividend payment indicates payments that a company makes to the shareholders of the company as a part of its profit share (Bradbury, 2016) In times when a company makes positive profit it is capable of reinvesting the profit the to expand its business and pay dividend to the shareholders. A dividend is paid as a certain amount per share. The shareholders receive dividends as a proportion of their shareholding. Dividends are considered as a source of income (Gregory, 2012) This by influencing income of shareholders might influence GDP of a nation. There exists a commonality between GDP of a nation and earnings in the stock market.

The market capitalization indicates total market value of outstanding shares of a company. This is commonly known as market cap. The market cap of a company is computed by multiplying unit price per share with the number of outstanding shares. In financial market, market capitalization is used to identify size of a company. It is a better measure of modeling size of the company as opposed to figures of total assets or total sales (Bagatska & Piuro, 2017) The market size of a company is important in making economic and financial decision. Higher market cap indicates a strong position of the company in the stock market. This is turn contributes to revenue and profit earnings of the company.

Hypothesis 

Depending on the past literature and research questions of the current research, the following two hypotheses are framed.

Hypothesis 1

Null Hypothesis (H₀₁): There exists no significant relation between revenue of BHP Billiton and GDP of Australia.

Alternative Hypothesis (H_A1): A statistically significant relation exists between revenue of BHP Billiton and GDP of Australia

Hypothesis 2

Null Hypothesis (H₀₂): Dividend payment and Market capitalization of BHP billion do not have significant moderating influence on GDP of Australia.

Alternative Hypothesis (H_A2): Dividend payment and Market capitalization of BHP billion have a statistically significant moderating influence on GDP of Australia.

Data collection 

The objective of his research paper is to determine how income of BHP Billiton is related to that of GDP of Australia. Income of the company is estimated using the annual revenue. Other related variables that are taken into consideration include net profit, dividend payment and market capitalization.  The research is based on secondary data sources. The company data such as net profit revenue, dividend and market capitalization are collected from annual reports and official website of BHP Billiton and other financial websites. Data on Australian GDP is collected from work bank website.

Methodology

Data Analysis 

A time series quantitative data has been collected from the annual reports, financial websites and company’s website. The collected data is then analyzed using quantitative method. The quantitative method stresses objective based measures using numerical, statistical or mathematical analysis of collected data (Brannen, 2017) It is particularly useful in determining relationship between one variable to other. In order to find out trend growth of the company, overtime trend in profit is analyzed. Two separate regressions are conducted. One is bivariate regression taking GDP as dependent and annual revenue as independent variable (Fox, 2015). Other is multiple linear regression where GDP is the dependent variable and annual revenue, dividend payment and market capitalization are considered as independent variables. The descriptive statistics and correlation analysis are conducted to find the overall trend and nature of relationship among the variables (Darlington & Hayes, 2016).

Descriptive Statistics 

Table 1: Descriptive Statistics of net profit

Net Profit (in M)
Mean	12699.83
Standard Error	1220.44
Median	13773.71
Mode	#N/A
Standard Deviation	4726.73
Sample Variance	22342022.62
Kurtosis	0.14
Skewness	-0.65
Range	17593.98
Minimum	2875.34
Maximum	20469.32
Sum	190497.42
Count	15

The descriptive statistics of net profit reveals that the average net profit for the selected period is 12699.83 million. The obtained standard deviation for net profit series is 4726.73. Because of a lower standard deviation as against mean, net profit of the company can be said to constitute a stable trend. Net profit is lowest in the year 2003 with the company recording a net profit of 2875.34 million. The company earned the highest net profit in the year 2011. Net profit to the company in this year was 20469.32 million.

Table 2: Descriptive Statistics of GDP

Australian GDP
Mean	1089897.11
Standard Error	92328.01
Median	1144260.55
Mode	#N/A
Standard Deviation	357584.86
Sample Variance	127866929155.95
Kurtosis	-1.22
Skewness	-0.28
Range	1107401.82
Minimum	466294.70
Maximum	1573696.52
Sum	16348456.61
Count	15

The descriptive statistics of Australian GDP shows that average GDP of Australia for the selected period is 1089897.11 million. The obtained standard deviation for GDP series is 357584.86. Because of a lower standard deviation as against mean, GDP of Australia can be said to constitute a stable trend. Australia accounted the lowest GDP in the year 2003 with GDP of the year being 466294.70 million. The economy recorded the highest GDP in the year 2013. GDP of Australia in this year was 1573696.52 million.

Table 3: Descriptive Statistics of annual revenue

Annual Revenue
Mean	54861.34
Standard Error	3891.32
Median	58765.63
Mode	#N/A
Standard Deviation	15071.02
Sample Variance	227135709.30
Kurtosis	-0.65
Skewness	-0.41
Range	50980.72
Minimum	24695.83
Maximum	75676.55
Sum	822920.03
Count	15

Summary statistics annual revenue reveals that the average net profit for the selected period is 54861.34 million. The obtained standard deviation for net profit series is 1071.02. Because of a lower standard deviation as against mean, annual revenue of the company can be said to constitute a stable trend. Net profit is lowest in the year 2003 with the company recording an annual revenue of 24695.83 million. The company warned the highest annual revenue in the year 2013. Annual revenue of the company in this year was 75676.55 million.

Findings

Bivariate Correlation 

Table 4: Correlation matrix of GDP and annual revenue, dividend payment and market capitalization

	Australian GDP	Annual Revenue	Market capitalization	dividend Payment
Australian GDP	1
Annual Revenue	0.85	1
Market capitalization	0.41	0.63	1
Dividend Payment	0.83	0.81	0.31	1

The correlation matrix shows pairwise correlation between Australian GDP and three other variables – annual revenue, market capitalization and dividend payment. The correlation between GDP and annual revenue of BHP Billiton is 0.85. The correlation closer to 1 indicates a strong positive association between GDP and company’s annual revenue. The estimated correlation between GDP and market capitalization is 0.41. From the estimated correlation it can be said that, market capitalization though has a positive association with the GDP but the degree of association is moderate. Finally, the estimated correlation between dividend payment and GDP of Australia is obtained as 0.83. This shows there exists a strong positive relation from between GDP and dividend payment of the company.

The bivariate regression model to be constructed here is

Table 5: Summary result of Bivariate regression

Regression Statistics
Multiple R	0.85
R Square	0.72
Adjusted R Square	0.70
Standard Error	197187.82
Observations	15

ANOVA
	df	SS	MS	F	Significance F
Regression	1	1.28466E+12	1.28466E+12	33.03902304	6.73254E-05
Residual	13	5.05479E+11	38883036389
Total	14	1.79014E+12

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	-12792.63	198481.4466	-0.0645	0.9496	-441585.7296	416000.4625
Annual Revenue	20.10	3.4968	5.7480	0.0001	12.5452	27.6540

With help of regression result, the regression equation is estimated regression equation is

The regression coefficient of annual revenue is 20.10. The positive coefficient of annual revenue indicates that annual revenue has a positive influence on GDP of Australia. That is an increase in annual revenue of BHP Billiton leads to an increase in Australian GDP. The relevant significance of the variable can be understood from the associated p value. P value for annual revenue is obtained as 0.0001. The obtained p value is less than the significance level of 0.05. This implies rejection of null hypothesis stating no statistically significant association between GDP and annual revenue.

The multiple regression model considering two additional variables dividend payment and market capitalization is given as

Table 6: Summary result of Multiple regression

Regression Statistics
Multiple R	0.89
R Square	0.79
Adjusted R Square	0.73
Standard Error	187026.99
Observations	15

ANOVA
	df	SS	MS	F	Significance F
Regression	3	1.40537E+12	4.68456E+11	13.39244615	0.00054281
Residual	11	3.8477E+11	34979095492
Total	14	1.79014E+12

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	167769.0333	211868.1456	0.7919	0.4452	-298549.6111	634087.6776
Annual Revenue	13.9907	7.5310	1.8577	0.0902	-2.5850	30.5664
Market capitalization	-1.0169	2.4882	-0.4087	0.6906	-6.4933	4.4595
dividend Payment	113.3993	76.9530	1.4736	0.1686	-55.9731	282.7718

The new regression model is obtained as

In the new regression model, the value of R square increased to 0.89 from 0.85 in the previous model. Addition of two new variables thus increase explanatory power of the model. The coefficient of annual revenue is 13.9907. In the new model, the relation between annual revenue and GDP still remains positive. For market capitalization, the coefficient is obtained as -1.1069. The negative regression coefficient implies an inverse relation between GDP and market capitalization of BHP Billiton.  In case of dividend payment, estimated coefficient is 113.3993. The positive coefficient again indicates a positive relation between dividend payment and GDP. In the new model however neither of the variables are statistically significant. P value for all the three coefficient is greater than 0.05. The null hypothesis that dividend payment and marker capitalization have no statistically significant relation with GDP is thus accepted.

Conclusion

Growth of BHP Billiton 

The growth of BHP Billiton is measured in terms of net profit. Net profit measures net earnings of a company after deducting operating expense, depreciation, interest, taxes and payment for dividend stocks. A higher net profit ensures steady a steady growth path for the company. BHP Billiton, one of the leading mining companies of Australia ensure a steady increase in net profit from 2003 to 2008. After 2008, net profit of the company declined due to global financial crisis (Parham, 2013). Net profit of the company again picked up from 2010 onwards. The mining industry in Australia during this time experienced a rapid expansion and entered the phase of mining boom. The effect of mining boom is reflected from the increased net profit of the company during this time (Fleming & Measham, 2015) The Australian mining industry recently experienced a slow-down in investment and growth due to decline in export to China and other internal factors. Consequently, profit of the company declined hampering growth. Decline in commodity prices, a fall in global oil prices and associated decline in prices of iron ore and coal contributed to a below expected earnings of the company (smh.com.au, 2018).

Hypothesis 1: Annual Revenue of BHP Billiton is significantly related to GDP of Australia

The first hypothesis is developed to find out the influence of BHP Billiton income on GDP of Australia. The null hypothesis states that annual revenue of the company has no significant relation with GDP of Australia. The alternative hypothesis is that there is a statistical significant relation between the two variables. The findings suggest that annual revenue has a positive significant relation with Australian GDP. That is as revenue of the company increases, national income increases as well. This is for the simple reason, as the company earned more and more revenue, it has a wider scope of expansion. As the company expands, employment increases which in turn increases income of household. BHP Billiton pays a significant amount of tax to the Australian government. This is another source of contribution to the GDP.

Hypothesis 2: There is a significant moderating influence of dividend payment and market capitalization on GDP of Australia

The second hypothesis is established to find out the moderating influence of dividend payment and market capitalization of BHP Billiton on GDP of Australia. The null hypothesis here states that the two variables do not have a moderating influence on GDP of Australia. However, neither of the three variables in the new regression model is statistically significant. The null hypothesis of moderating influence of GDP is accepted.  The incorporation of market capitalization and dividend payment thus reduces the significant influence of annual income on GDP of Australia.

Descriptive Statistics of Net Profit

Conclusion

The section briefly addresses the research question based on the findings and discussions in the previous sections. Besides, limitation of the current research paper and recommendations are given depending on these findings.

The primary objective of this research paper is to find out impact of BHP Billiton income on GDP of Australia. Accordingly, three research questions ae framed to accomplish the primary research aim.

The first question is related to growth of BHP Billiton over time. For this the trend in BHP Billiton’s net profit is considered. Following an expansionary phase in Australian mining industry the company experienced an increasing trend in the profit from 2003 to 2008. Profit though slightly declined after 2009, it again picked up in since 2010. In recent years, net profit followed a downward trend due to an overall slowdown of mining sector caused from China’s slow growth, a decline in global commodity price along with a decline in mineral prices.

The second research question is relating to impact of annual revenue of BHP Billiton on GDP of Australia. Finding suggests a positive significant relation between annual revenue and GDP indicating higher revenue has a positive influence on Australian income.

The third research question addresses the moderating influence of dividend payment and market capitalization on GDP of Australia. Neither of the two variables has any significant influence on GDP of Australia.

The paper considers annual revenue as a proxy measure of annual income. An alternative measure can be the use of value added of the company. Value added which include wages and salaries including insurance, depreciation and profit before tax can an appropriate estimate of GDP. Further research can be done using the value added of the company.

The paper finds a positive association between revenue of BHP Billiton and GDP of Australia. In recent years, the company however is experiencing a declining profit. Government there should provide necessary support and assistance to the company to recover profit and growth of the company.

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