Effects of ups and downs of the Mongolian mining sector

The economy of Mongolia, a country rich in natural resources, is increasingly dependent upon the mining sector. International prices of mining commodities have been highly volatile in recent years. This paper uses a computable general equilibrium model to examine the short-term effects on the Mongolian economy of two scenarios: (1) a moderate boom in the coal market; and (2) a drop in the world price of metal ores. It is found that the Dutch disease effect generated by the shocks is insignificant given the structure of the economy (e.g., small export shares and low export intensity of manufacturing and agriculture commodities) and a labor market condition with high unemployment. Since the economy is largely dependent upon on the mining sector, the impacts of the shocks are jarring, implying that the government must abide by its fiscal rules for stable growth and prosperity.