Resource information
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.
