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Growth diagnostics for a resource-rich transition economy : the case of Mongolia

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  • Ianchovichina, Elena
  • Gooptu, Sudarshan

Abstract

This paper uses a growth diagnostics approach à la Hausmann, Rodrik, and Velasco (HRV) to identify the most'binding'constraints to private sector growth in Mongolia - a small, low-income, mineral-rich, transition economy. The approach of applying the HRV methodology is useful in those cases where a lack of data prevents us from estimating shadow prices to identify the most'binding'constraint to growth. We find that although Mongolia is not liquidity constrained and has grown rapidly in recent years, economic growth has been narrowly based. Investment has flowed mainly into a small number of firms operating in mining and construction. The low level of private investment in sectors outside mining and construction has been due to low returns - a result of costly and unreliable transportation services; lengthy and complex transit procedures, including customs and trade rules; distortionary taxes; coordination failures, at both domestic and international levels; and growing corruption. Poor financial intermediation is also a problem that has kept the cost of finance high, although lower than in previous years. Alleviating these binding constraints will ensure that Mongolia maintains the path towards sustained, broad-based growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4396.

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Date of creation: 01 Nov 2007
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Handle: RePEc:wbk:wbrwps:4396

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Related research

Keywords: Transport Economics Policy&Planning; Debt Markets; Economic Theory&Research; Emerging Markets;

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Cited by:
  1. Ronnås, Per, 2011. "Challenges for achieving job-rich and inclusive growth in Mongolia," ILO Working Papers 465844, International Labour Organization.
  2. Yaroslava Babych & Michael Fuenfzig, 2012. "An Application of the Growth Diagnostics Framework: The Case of Georgia," Working Papers 001-12, International School of Economics at TSU, Tbilisi, Republic of Georgia.

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