Forecasting the economic impact of coal mine closure in the Gippsland region: Australia: evidence from ARDL and ARIMAX models

In this paper, we examine the potential economic impact of coal mine and power station closures on the Gippsland region in Victoria, Australia. We evaluate this economic impact using time-series analysis focusing on Gross Regional Production (GRP), Value-added, and employment statistics. As the first step, we investigate the long-run nexus between the coal mine sector and these regional economic parameters using the Autoregressive Distributed Lag (ARDL) approach. After confirming the cointegration properties among the variables, we then employ an Autoregressive Integrated Moving Average with Explanatory Variable (ARIMAX) method to forecast the long-term economic impacts. The findings confirmed the existence of cointegration between the mining sector and GRP, Value-added, and employment in the Gippsland region. The Toda Yamamoto causality test, employed to establish robust causal links, revealed noteworthy results, including a unidirectional causality running from Mining sector to GRP, which supports the ARIMAX model for accurate economic forecasting. The subsequent ARIMAX projections indicate that if no comprehensive plan is developed to compensate for lost value-add, the Gippsland economy will face a potential deficit of approximately AUD 4.5 billion by 2050. This loss necessitates that the region generates an annual investment of between eighty million to $100 million in current value to maintain economic stability. The results highlight the urgent need for the State and local government, along with regional industry and stakeholders, to develop a comprehensive plan to address and minimize the adverse economic impact of the mining and power station closures.