Dutch Disease in Mongolia: Mining sector dependence and strategies for diversification

Summary

Mongolia's economy is heavily dependent on mining sector. Whilst this sector generates significant foreign investment and government revenue, it also contributes to "Dutch Disease," characterised by currency appreciation that negatively impacts other industries and attracts labour away from them. Furthermore, the economy is vulnerable to fluctuations in commodity prices. To ensure long-term stability, Mongolia should diversify its economy by enhancing non-mining value-added industries, with a particular focus on livestock-based manufacturing.
This thesis analyses the mining sector's impact on the economy and explores potential diversification strategies. It examines economic dynamics, confirming that mineral exports stimulate the economy but also exacerbate Dutch Disease. The analysis further demonstrates the effects of coal and copper price volatility on GDP and sectoral output. Key sectors identified for diversification include energy and manufacturing, particularly those linked to livestock. Finally, the study highlights critical challenges within the livestock sector that must be addressed to facilitate successful diversification.