Does Dutch Disease Hit Mongolia?

Mongolia is a comparatively small country in the world and the limited domestic demand makes it rely on the trade with other countries. In recent years, Mongolia’s extensive mineral deposits and attendant growth in mining-sector activities have transformed Mongolia’s economy which traditionally has been dependent on herding and agriculture. An equilibrium displacement model based on the macro-economy conditions in Mongolia is conducted to test whether the development of the mining sector has come at the expense of the agricultural sector, as suggested by the “Dutch Disease” hypothesis. Base on the classic economic model developed by Corden and Neary (1982) to describe Dutch Disease: in an open small economy (Mongolia), the booming tradable sector (mining) would suppress the lagging or non-booming sector (agriculture). How the booming mining industry affects the traditional agriculture industry (including grazing) is the main point of this paper.