Manufacturing in a Small Natural Resource Abundant Economy: Evidence from Mongolia

Abstract

We argue that the extreme dependence on the natural resource sector has affected
a part of the Mongolian economy negatively, thus causing the manufacturing
sector to decline. This phenomenon, or the so-called Dutch Disease hypothesis
were tested, and the results are supportive of the argument. We found a long-run
negative relationship between the growing resource sector and manufacturing:
a ten-percent increase in the resource sector brings a two-percent decrease in
manufacturing in Mongolia.